The Pensions Regulator (TPR) has opened a consultation on a regulatory framework that will ensure employees in defined contribution (DC) pension schemes get the best return on savings.
Its Regulating work-based defined contribution pension schemes consultation sets out six principles and 31 quality features that occupational DC trust-based pension schemes should follow in order to increase the opportunity for members to receive good outcomes from their pension savings.
The quality features include that:
- Scheme trustees should ensure members receive value for money from pension schemes.
- Members shoudl be regularly informed of the importance of reviewing the suitability of their investment choices.
- The performance of each investment option, including the default, should be regularly assessed against stated investment objectives.
- A process is provided to help members optimise income at retirement.
Other key elements of the package of measures set out in the consultation include:
- A comply-or-explain regime under which schemes will be expected to adopt a disclosure framework to demonstate how they comply with the DC quality features or be able to explain any inconsistencies.
- Master trusts will have to obtain independent assurance to help demonstrate they comply with the DC quality features.
- A code of practice for pension schemes that provides practical guidance on the requirements of pensions legislation and sets out standards of conduct and practice for those running pension schemes.
- When trustees fall short of the standards, the regulator can take action including issuing notices directing compliance with the law, fines, and removing trustees and replacing them.
According to TPR, these new standards are particularly important in light of up to eight million employees being auto-enrolled into pension schemes over the coming years, the vast majority into DC schemes.
Bill Galvin, chief executive at TPR (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.
“Where we find schemes fall short of the standards we have set out, we will expect them to improve. Smaller schemes may find this challenging and decide that the interests of their members would be better served in another type of arrangement.”
The consultation closes on 28 March 2013.
