Pension scale rules should recognise pooled assets to avoid unnecessary consolidation, TISA warns
TISA has recommended that the Government assess the pension scale across the common funds and investments sitting under different default arrangements, warning that measuring each default in isolation could force effective bespoke arrangements to merge without improving outcomes for savers.
In its response to the Government’s discussion paper on key elements of the Scale Policy, TISA highlighted its support for the principle but also warned that the proposals must work alongside wider DC reforms. In particular, proposed Value for Money chain-linking rules could discourage providers from consolidating weaker defaults if doing so negatively affects the performance assessment of the receiving arrangement.
Renny Biggins, Head of Policy: Products & Long-Term Savings at TISA, commented:
“Greater scale can deliver real benefits for pension savers, but bigger does not automatically mean better. Many bespoke arrangements are designed around the particular needs of employers and their workforces while already benefiting from scale through the same underlying investment funds.
“Forcing those arrangements into a single default simply to meet a scale requirement could remove useful tailoring without creating any additional benefit for members. It could even encourage some employers to move towards Single Employer Trusts to regain greater control, increasing fragmentation rather than reducing it.
The different reforms taking place across DC pensions also need to work together. The framework should remain proportionate and flexible enough to support better saver outcomes today, while adapting as the market, consumer behaviour and technology continue to evolve.”
In its response, TISA also recommends that Government:
- Allow appropriate differences between default arrangements where these reflect different workforces, risk profiles or retirement strategies.
- Ensure Value for Money chain-linking rules do not inadvertently discourage otherwise beneficial consolidation.
- Delay any wider Fragmentation Review until the Scale and Value for Money reforms have been implemented, so any remaining problems can be assessed on the evidence.
- Provide appropriate flexibility for specialist investment strategies, including Sharia-compliant funds.
- Keep the framework adaptable as the pensions market evolves through further consolidation, changing saver behaviour and technologies including AI.
ENDS.
- A full copy of TISA’s response is available on request.
- The Department of Work and Pensions discussion paper focuses on the key elements of how Scale will be assessed – the Main Scale Default Arrangement, the Common Investment Strategy and the connections that will be allowed between schemes to meet the scale thresholds.
- TISA is a not-for-profit membership organisation committed to improving the financial wellbeing of all UK consumers by working collectively with the financial services industry to deliver solutions and champion innovation, for the benefit of people, our industry, and the nation. The deadline for responses is the 7th September.
- TISA has approximately 260 member firms involved in the supply and distribution of savings and investment products and associated services. Members include the UK’s major investment managers, retail banks, online platforms, insurance companies, pension providers, distributors, building societies, wealth managers, third party administrators, FinTechs, financial consultants, financial advisers, industry infrastructure providers and stockbrokers.