Distance Marketing Directive (DMD)
The government is currently facing a real headache with regard to the latest pension reform policy in the shape of a piece of European legislation.
The culprit is the Distance Marketing Directive (DMD), as this stops employers automatically enrolling their employees into contract-based pension arrangements, such as group stakeholder pension plans (GSHPs) and group personal pensions (GPPs).
No auto-enrollment means that these pension schemes would fail the new exempt scheme test under pensions reform, and employers instead would have to offer a trust-based scheme or (more likely) pay into personal accounts for their employees, come 2012.
Most observers would conclude that this would be a most unacceptable outcome.
GPPs are very popular within the industry and employers alike, and the take up of these plans is growing all the time as employers opt out of the more onerous trust-based defined contribution and benefit occupational schemes in favour of them.
Thankfully the Minister of State in charge of Pension Reform a certain James Purnell is well aware of the problem and sympathetic to the potential problems (as he alluded to at the Financial Adviser expo this May), but and there is always a but, he has at present no clear idea of a way forward. He is of course taking advice!
But the question is, how can a fix be found?
It may be possible for the Department of Work and Pensions (DWP) to look at this piece of legislation and push to have it amended to allow auto-enrollment into GPPs and GSHPs while still meeting the principles of the Directive. Or, perhaps some other way at a more grass route level, involving the employee giving their prior consent to an employer.
One thing is clear however; allowing GPPs and GSHPs to pass the exempt scheme test is a problem that must be sorted.
Suggestions on a postcard!
Date: 30th May, 2007
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