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U.K. government seeks comment on fund consolidation and regulator’s powers

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The U.K. Department for Work and Pensions called for the consolidation of smaller defined benefit funds and greater powers for The Pensions Regulator in a comment paper published Monday.

The paper, “Security and Sustainability in Defined Benefit Pension Schemes,” set out the DWP's proposals for developments to the U.K. retirement market. It is seeking comment from the retirement industry before May 14.

The DWP said it wants to “see more plans consolidate” to make significant savings in terms of administrative costs. “Most DB schemes are small, and the data suggest that small schemes have higher administrative costs, are unable to benefit from the economies of scale available to larger schemes and tend to have less effective governance,” said the paper.

As part of the proposed strengthening of the U.K. pensions watchdog's powers, the DWP wants TPR to be able to administer substantial fines to companies for corporate transactions that have a detrimental impact on their pension funds. It also recommended that plan sponsors be required to provide information to trustees in a timely manner and that trustees be consulted before dividends are paid to shareholders if the pension fund is severely underfunded. The government said it “was not persuaded that there is a general affordability problem for the majority of employers running a defined benefit plan.”

The DWP is wants comment on its intention to explore whether pension funds should be encouraged to make more optimal investment decisions and to mitigate any barriers to the greater use of alternative asset classes.

Further details are available on the DWP website.