The Pensions Regulator (TPR) has launched a consultation on its proposed new regulatory approach to workplace defined contribution (DC) schemes ahead of full-scale auto-enrolment.
The regulator is seeking industry feedback on its regulatory approach, including an updated list of its 31 DC quality features; a DC code of practice for trustees of occupational trust-based DC schemes; and its DC regulatory guidance, which it says will offer more guidelines not included in the code to help trustees implement the quality features.
Points for consultation include measures to enforce compliance where schemes are failing; the regulator's particular attitude to small schemes and master trusts; guidance on trustee education; and the role in improving member outcomes for the market as a whole.
Chief executive Bill Galvin (pictured) said: "We expect all DC schemes to demonstrate how they will comply with our principles for good DC schemes and this will give employers reassurance about their choice of scheme.
"Members bear risks where DC schemes perform poorly. Many members will not have any experience of DC pension saving, so it's vital that schemes are run by capable people who act in members' interests from enrolment to retirement.
"Where we find schemes fall short of the standards we have set out, we will expect them to improve. Some smaller schemes may find this challenging and decide that the interests of their members would be better served in another type of arrangement."
The key elements of the consultation:
• A set of 31 DC quality features covering key areas such as contributions, investments, governance standards, administration, value for money, converting a pension pot into a retirement income and member communications.
• A ‘comply or explain' regime - occupational DC trust-based pension schemes will be expected to adopt a disclosure framework to demonstrate how they comply with the DC quality features, or to be able to explain any inconsistencies, TPR said.
It added that disclosure will help to give employers confidence that schemes they choose for their workers meet certain standards and will require trustees to consider what processes are in place that ensure the presence of the each feature. Schemes might choose to disclose this information via their annual report, for example.
• Master trusts will be expected to obtain independent assurance which can help demonstrate that they comply with the DC quality features.
Master trusts have potential to offer benefits such as low charges and good governance. However, because of the significant numbers of workers expected to be automatically enrolled into this segment, the regulator believes that an additional level of assurance is necessary to address risks such as low barriers of entry to the market and the potential for conflicts of interest if the trustees have a close association with the provider.
• A code of practice for occupational DC trust-based pension schemes that provides practical guidance on the requirements of pensions legislation and sets out standards of conduct and practice expected of those responsible for running schemes. Standards set out in the code will be a key reference as to whether enforcement action is necessary.
• The DC code should be read in conjunction with regulatory guidance setting out good practice standards in areas such as value for money, transparency of costs and charges and member communications.
• Where trustees fall short of the standards expected the regulator can take action to put things right. This includes issuing notices directing compliance with the law, fines and removing trustees and replacing them with new ones.
The consultation closes on 28 March.
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