The DWP has published a memorandum explaining the purpose of the new and amended powers which have been delegated to it in the Pensions Bill. These are intended to address concerns which have been expressed about the complexity of the current alternative quality test for DB schemes - the test scheme standard.

A DB scheme can meet the necessary quality requirements under the automatic enrolment legislation (and therefore be used by the employer to comply with its auto-enrolment duties) if it is contracted out. If a DB scheme is not contracted out currently, the only other way it can meet the quality requirement is to meet a particular test called the "test scheme standard". The test scheme standard has been criticized as being too complex. This is a particular concern because after DB contracting out has been abolished the test scheme standard will be the only way in which DB schemes can meet the quality requirement. The DWP is concerned that employers will be discouraged from using DB schemes to meet their auto-enrolment requirements.

The DWP is intending to introduce two new alternative quality requirements for DB schemes. The new alternatives are:

  • to allow certain DB schemes to satisfy the money purchase requirements;
  • to introduce two new tests based on the cost of funding future accruals.

The memorandum can be accessed by clicking here.