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Pensions Regulator slams 'poorly run' small schemes for auto-enrolment

The Pensions Regulator, the UK regulator of work-based pension schemes, has said workers should not be automatically placed into small schemes, which do not offer good value for money. It wanted people to be auto-enrolled into large-scale schemes, which can deliver low charges through economies of scale.

Speaking yesterday at a conference held by the National Association of Pension Funds (NAPF) in London, Pensions Regulator chairman Michael O'Higgins said employers should not use 'smaller schemes' to meet their legislative responsibilities. The regulator said its definition of 'small' covers schemes with between 12 and 99 members.

The Pensions Regulator said it wants to hear views on a voluntary approach which would see schemes explained to employers, retirement savers or the regulator on how well governed they are. It claims this could be done through an annual report.

O'Higgins said: "The number of people saving into Defined Contribution (DC) pensions is set to increase enormously as a result of automatic enrolment. The best outcome for these individuals is to be auto-enrolled into high-quality, value-for-money schemes, benefiting from scale and good governance.

"This simple truth is at the centre of our regulatory approach, and we will encourage the provision of schemes displaying the features necessary for good outcomes. More small schemes are not the answer, however.

"So I want to say explicitly today that, in our view, workers should not be automatically enrolled into smaller schemes which do not benefit from economies of scale, tend to be poorly run and do not deliver value for money in the charges they make to members."

Steve Wood, head of projects for corporate adviser Helm Godfrey, told HR magazine: "No-one wants to see people enrolled into small pension schemes that do not benefit from economies of scale.

"But the Regulator should avoid making sweeping assumptions. Just because a scheme is 'small' in the regulator's view, it does not necessarily follow that it is expensive or poor value for money for members."

Wood added: "Equally, to suggest that smaller schemes are poorly run is unfair and insulting to trustees of smaller schemes. The Pensions Regulator is right to be focusing on ensuring scheme members get value for money, but branding all smaller schemes as expensive and poorly run is not helpful and does not necessarily address the issues it is seeking to address."

Joanne Segars, NAPF chief executive, said: "We share the Regulator's concerns about scale and value for money, and we echo its desire to see all workers auto-enrolled into a high-quality pension. There is no point in bringing people into a bad pension."