UK - The UK government must be careful not to kill trust-based defined contribution (DC) schemes, Hymans Robertson has warned after the Department for Work & Pensions launched a consultation on the shape of the DC market.

When announcing the consultation, pensions minister Steve Webb said the issue of refunds, possible in trust-based schemes if a member changes employers, needed to be examined, as it risked the stability of the auto-enrolment pension reforms.

However, Hymans Robertson's head of DC Lee Hollingworth argued that the difference between trust-based and contract-based occupational pensions were important, as they offered employers a choice and argued that Webb's focus on short service refunds was a "worrying development".

"It looks as though some hard lobbying by the providers of contract based plans, who stand to lose out from this, have succeeded in convincing the DWP to launch a consultation on the issue."

He added that the consultation should be careful to offer a balanced conclusion, as a ruling affecting the refund structure could be disastrous.

"The DWP must also be careful not to inadvertently 'kill' the trust based solution as a result of this consultation," Hollingworth said, highlighting the advantages of trust-based schemes governance structure, meaning trustees must always make decisions with members best interest at heart, disregarding the impact it may have on the employer.

Meanwhile, several consultancies have commented on the Pension Regulator's (TPR) recent discussion paper on how it should support DC schemes.

The regulator's chief executive Bill Galvin said the paper, 'Enabling Good Member Outcomes in Work-Based Pension Provision', was the start of a debate on what DC pensions should look like in future, as a shift in approach was needed since the first guidelines were drawn up in 2007, well before auto-enrolment.

Rachel Brougham, principal at Mercer, said the emphasis placed on governance by the regulator was important, as the key issues highlighted - such as protection of scheme assets, effective administration, as well as settling on appropriate investment decisions - all flowed from this one issue.

She said further that perfecting the master trust model was key, with the National Employment Savings Trust (NEST) likely to lead the way.

"The right solutions will provide much needed support to smaller employers willing to make pension provision but for whom the oversight and monitoring of pension provision would incur significant additional cost," she said.

However, Barnett Waddingham's Mark Futcher argued that while commercial providers had previously said there were unable to cater to the low-cost market now targeted by NEST, the scheme would be facing a fight back in future.

"I believe there is a door that NEST has left wide open; by not allowing transfers in and out and limiting contributions to £3,600 per annum until 2017," he said, explaining that the contribution limit in particular would pose problems and may result in companies instead opting for a qualifying workplace pension scheme.

Gurmukh Hayre, pensions partner at consultancy KPMG added that the regulator must work more closely with the Financial Services Authority to guarantee a cohesive approach.

In other news, former Treasury Select Committee chairman Lord McFall has launched a new commission examining how pension saving can become affordable for UK workers, with over 40% saying they are not able to save for old age.

The poll, commissioned by the National Association of Pension Funds (NAPF) who are behind the Workplace Retirement Income Commission (WRIC), also found that 55% did not expect they would be able to save enough for retirement.

Lord McFail said that half the workforce was facing a retirement in poverty, adding: "While the visionary proposals put forward by Lord Turner's commission will get more people saving for their retirement from 2012, they are the beginning of the reform process, rather than the end."

He added: "Even with auto-enrolment, up to nine million people risk being left behind, and we have to make it easier for everyone to save more. We will look at different types of pension and savings products, tax incentives, and the regulations faced by employers."

The remaining members of the WRIC, in addition to McFall, are Graham Cole, managing director of manufacturer AgustaWestland, as well as Chris Hitchen, chief executive of RPMI and a former NAPF chairman, Paul Johnson, director of the Institute for Fiscal Studies.

Additionally, Imelda Walsh, former HR director of supermarket chain Sainsbury and John Hannett, general secretary of union Usdaw will sit on the commission.

Topics