The Pensions Regulator (TPR) has published a guide to help employers, trustees and providers deliver good outcomes from defined contribution (DC) pension schemes.
The guide, Enabling a good member outcome in DC pensions, includes a list of features that represent its current view of the core components of a DC scheme that are most likely to result in a better income for savers at retirement. The list has been developed following a series of discussions with the pensions sector during the early part of 2012.
TPR has also published a tool to help employers check whether their existing DC scheme meets the minimum criteria for auto-enrolment.
It has also published a leaflet, Selecting a good automatic enrolment scheme, that sets out a number of questions that employers should be asking advisers and providers when they are selecting a pension scheme for auto-enrolment.
Bill Galvin, chief executive at The Pensions Regulator, said: “It’s important that employers and retirement savers have confidence that their chosen scheme is likely to deliver good outcomes.
“With these principles and features, we want to support the industry in demonstrating to employers and members that schemes are well designed and governed. These will also form an important part of our regulatory approach. We will consult formally on that in 2013.
“In the meantime, we hope that those responsible for designing and running schemes to be used for automatic enrolment will take these principles and features into consideration.”
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The statement usefully builds on the work TPR published last year defining the principles for good DC. This is important on the eve of automatic enrolment.
You can’t argue with the high-level principles that TPR has set out and the document is a useful summary of its thinking in this area.
However, we would like to have seen TPR be bolder in setting out its vision for what good DC looks like. In a DC world, where the risk is with the member, putting the member at the heart of the process is what counts in securing good outcomes.
We think that this can only be achieved by good member governance. We need to ensure the interests of the member are protected.
The Pensions Regulator’s developing work on DC pensions is providing constructive guidance for the industry and employers in delivering good outcomes for their members, however we are concerned that the work does not yet go far enough.
We know that certain key factors will have a disproportionate impact on the value members get back from their pensions, in particular the contribution rates, the investment decisions and the decumulation process.
We do not feel that TPR has adequately addressed how schemes can drive good outcomes in these critical areas.
PASA was pleased to have the opportunity to guide TPR in articulating what good administration represents. However, we feel that the opportunity to highlight the employer’s part in administering a pension has unfortunately been missed. Readers of the principles may mistakenly think that they are entirely focused on pension administrators.
PASA also does not differentiate between good DC and good DB administration, there are simply different processes to be applied to each. It is therefore important that DB schemes review these principles, as they can largely be applied to their scheme as well.