The Pensions Regulator (TPR) has urged employers and their advisers to move away from using small pension schemes in its proposed new regulatory approach to trust-based defined contribution (DC).
In today's wide-ranging consultation, TPR said schemes with between 12 and 999 members usually have limited resources, a lack of economies of scale, lower trustee engagement and limited access to quality independent advice.
"Given the constraints within this segment and the challenges that trustees of existing schemes already face, we do not expect to see existing or newly established schemes that fall within this segment being used for auto-enrolment," the regulator said.
"We encourage employers to move away from small-scale schemes on the basis that they are less likely to deliver good member outcomes. Consequently, employers and trustees of existing schemes may determine that the interests of members may be better served in larger scale schemes, and we will support this transition."
TPR added that it does not expect scheme size or proportionality to be an excuse for quality in this segment, and that it will require trustees of small and medium schemes to adopt a voluntary disclosure framework with which to demonstrate their compliance with the DC quality features.
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