The regulatory guidance is a useful manual for trustees to follow if a DC transfer is being considered. It sets out a number of areas of good practice and its expectations of those considering a switch, and makes clear that trustees’ fiduciary responsibilities are paramount before embarking on a transfer. It sets out key considerations ranging from communications to members, scheme data quality, the legal documentation required to effect the transfer and how the transition itself should be managed.
Inevitably, there are also a number of potential pitfalls to be aware of and thorough preparation for a transfer will be crucial. Trustees will need to consider, amongst other things, whether consultation with members may be required (e.g. if the transferring scheme is still open to accrual), that no guarantees or promises are built into their existing benefit structure and also to ensure that no valuable member tax benefits may be lost as a result of any transfer.
We expect that DC consolidation will continue as regulation and experience of the master trust industry evolves and, in that context, the new regime offers many small DC trust operators a welcome opportunity to avail themselves of the experience and expertise of larger industry players.
The changes to the DC bulk transfer regime simplify the process for transferring DC benefits and are, therefore, clearly an important step on the path to the Regulator’s stated ambition to achieve consolidation of small DC trusts in order to improve governance and, ultimately member outcomes.