The Government’s consultation on the draft regulations (the Regulations) to make changes to DC to DC bulk transfers without member consent has now closed. The proposed changes, which are likely to be in force from April next year, will replace the existing protections, streamlining the process, whilst still maintaining safeguards. This will be of interest to any employer considering transferring its DC scheme to a master trust.
Current legislation allows a bulk transfer of benefits from an occupational pension scheme without member consent if the following conditions are met:
- The Scheme Quality Condition: an actuary must certify that the transfer credits to be acquired for each member in the receiving scheme are ‘broadly, no less favourable’ than the rights being transferred; and
- The “Scheme Relationship Condition: both schemes must relate to persons who are (or have been) in employment with the same employer; or the transfer is the result of a financial transaction between the employers; or the employers are related for the purposes of the legislation (the employers are, broadly, part of the same corporate group)
The changes proposed in the Regulations include removing both of these conditions for pure DC to DC transfers without consent (i.e. where there are no potentially valuable guarantees).
Instead, under the Regulations, a pure DC to DC bulk transfer without consent will be possible where:
- the receiving scheme is an authorised master trust (already under financial and governance obligations); or
- the receiving scheme is an occupational DC scheme other than an authorised master trust scheme, provided the trustees have obtained the advice of an independent qualified professional with appropriate knowledge and experience of DC investments for all other occupational DC schemes.
The Regulations also require the receiving scheme to continue to apply the DC charges cap where it was applied in the transferring scheme to the benefits being transferred.
The transferring trustees will still need to be satisfied that the transfer is in their members’ interests.
These proposed changes aim to simplify the process and avoid issues that have arisen as a result of the changing pensions landscape and the increased prevalence of DC schemes, which have rendered the current legislation less meaningful.