My Lords, I thank the Minister for her presentation and explanation of why the Government are introducing this statutory instrument. The Explanatory Memorandum states that it
“will encourage better trustee engagement, transparency and governance when buying investment consultancy and fiduciary management services. It will require trustees of occupational pension schemes … to set objectives for their investment consultant and carry out a tender exercise in certain circumstances before appointing a fiduciary manager. It will also enable The Pensions Regulator … to oversee the remedies which apply to such trustees and ensure compliance.”
The problem that the regulations are designed to address is focused mainly on smaller occupational pension schemes which need to take advice on their investment strategy. The investigation by the CMA of advice to pension schemes found that there was a low level of engagement with trustees, a lack of information for assessment of value for money, and that customers were steered by consultants towards their own higher cost fiduciary management services giving them incumbent advantage.
The remedies proposed by the CMA are to become part of the new regulations, with TPR ensuring compliance. We are broadly supportive of the measures in the SI but have a few issues for the Minister to address. First, can she reassure us that the new process is not onerously bureaucratic and time-consuming for small schemes? Certainly, the introduction of competitive tendering has in some cases led to a very time-consuming process, so I would like her assurances on that.
What about the cost to smaller pension schemes? The impact assessment has detailed calculations but, probably because it is very long and detailed, I did not find a great deal on the need to empower and train trustees and managers to introduce the new system.
Also, the DWP has a strong view that bigger is better as far as pension schemes are concerned. These regulations are needed to improve the quality of advice to smaller schemes with less experienced trustees. Will the Minister say how the consolidation of DB and DC schemes is going? The Minister urges consolidation and the Government are starting to put in place a “comply or explain” duty on small pension schemes to show that they are providing value for money for members or, if not, to merge into something bigger. Has this been successful? How has it been evaluated? Can she say something about what the Government
are doing about the barriers to consolidation? For example, what is the cost of legal advice and consultation with members to wind up a scheme and merge into something bigger? In small schemes, costs could be high relative to the gains from consolidation, so what are the Government doing about that?
We support the proposals and look forward to best-quality advice and higher transparency for members of the scheme. I look forward to the Minister’s response to the points that I have raised.
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