DWP has been urged to ‘seize the moment’ for pensions simplification by bringing forward legislation to make it easier for Defined Benefit pension schemes to streamline member benefits.
The call comes in the consultation response from Steve Webb, Director of Policy at Royal London, to the DWP’s consultation on DB Benefit consolidation which closes on 1st February. At present DB member benefits can be hugely complex involving up to a dozen different ‘tranches’ which may have different rules around things like indexation and revaluation and even the extent to which they are covered by the Pension Protection Fund.
Before Christmas, Steve Webb joined forces with the Association of Consulting Actuaries to produce a policy paper on benefit simplification entitled: “Simplifying Pension Benefits – is it time for the Pensions Pound?” which argued that allowing schemes to simplify existing benefits without needing individual member consent could lead to substantial savings in running costs. It could also make it easier for members to understand the benefits they have, and could mean that consolidation of DB schemes into superfunds was more efficient. The paper also points out that DB schemes are already doing a lot of work on their member data in order to respond to the issues of GMP Reconciliation and GMP Equalisation and that this would be the ideal opportunity to do a more fundamental transformation of benefits.
Commenting, Steve Webb said:
“We have a rare window of opportunity to do something radical that would simplify pensions for millions of people. With a Pensions Bill expected in this year’s Queen’s Speech, legislation could remove barriers to simplifying member benefits which would make it easier for members to understand their pension rights and cheaper for schemes and employers. In addition, given the current focus on the potential for DB consolidation, true consolidation would be much easier and more cost-effective if DB pension benefits could be standardised and harmonised. This is a rare example of a reform that could benefit members, pension schemes and employers, and I urge the DWP to seize the moment”.
Notes to Editors
1. The consultation closes on 1st February and the consultation document can be found at: https://www.gov.uk/government/consultations/defined-benefit-pension-scheme-consolidation
About Royal London:
Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.