WTW comment
We informed DWP at the 2020 review that some otherwise good quality DB schemes do not meet the pensionable pay definition under the present cost of accruals test. This imposes additional costs on these schemes as they need to complete the more complex test scheme standard assessment with no benefit to members. The DWP’s response stated that “we will, however, look for opportunities to work with those respondents who have raised this issue on potential solutions for the future”. It is therefore disappointing that in this call for evidence the DWP has changed its mind and now states that it does not propose to revisit this issue. We are not convinced by DWP’s assertion that changes to address this issue would “risk obscuring what is meant to be a broad simplified test”.
We would also suggest that limiting the call for evidence to asking about problems in relation to opting down is too narrow and it should be extended to include easements for members where scheme rules limit benefits to avoid breaching Annual Allowance or Lifetime Allowance limits.
Regarding single and connected CDC schemes, we note that the current alternative CDC test looks at the actual collective contributions, which we see as appropriate for those schemes. We note that the call for evidence highlights that this test operates alongside the CDC valuation requirements; we infer that DWP may be referring in particular to the safeguard regarding value for members contributions, something that is also implicit for DC schemes. This may explain why there is not an option for the quality of a DB scheme to be assessed by looking at the £amount contributed, whereas there is for DC and CDC schemes. However, we note that such an option for DB schemes was originally included in the Pensions Act 2008, subject to regulations, but the Government decided not to introduce it. Our view is that if whole-life multi-employer or master trust CDC schemes arise which provide CDC benefit accumulation based on the principle of equivalent value to the contributions paid for each individual, there is sense in the test being the same as the individual DC test, based on the contributions paid for that individual.
