GUIDANCE on defined contribution (DC) contract-based pensions schemes issued by The Pensions Regulator may fail to improve the governance of DC plans by employers say experts.
The regulator’s report, Voluntary employer engagement in workplace contract-based pension schemes, provides guidance to employers that have chosen to become more closely involved in monitoring the running of their contract-based DC pension schemes.
Although employers will choose a provider of a contract-based plan and, in most cases, make contributions, traditionally they will not have much involvement with the running of such a scheme which effectively constitutes an agreement between the employee and provider. As consequence, employers may be unwilling to become involved in governance issues and the regulator may find it difficult to exert any influence.
David Bird, principal at pensions consultants Towers Perrin, said: “It is interesting that The Pensions Regulator is setting models of good practice when employers who take the contract-based route do so because they want to get away from monitoring and so on.”
However, not all experts take this view. Helen Dowsey, principal at Aon Consulting, said: “The guidelines don’t put a burden on employers and I hope that [employers] don’t have a negative mindset. Certainly clients that I have spoken to, want to take an active role and deliver something that’s going to benefit employees.”
Recent research conducted by the regulator, which has a statutory responsibility in relation to all work-based pension schemes, in fact shows that approximately half of employers with a contract-based scheme already have some form of governance arrangement over and above that legally required.
The regulator’s report recommends that employers put in place arrangements for schemes to be periodically reviewed so that, for example, any administrative problems in running the scheme can be identified early on, charges can be benchmarked, and member understanding improved. Monitoring systems, management committees and employee consultation are all put forward as ways of improving governance.
Alistair Elliott, technical specialist in the DC governance team at The Pensions Regulator, said: “Our statutory objective is to protect the benefit of these schemes and promote good administration. This is not something that we can ignore. This guidance is for employers who want to do more than they are legally required to.”
The regulator has also issued a DC Update which indicates that further guidance will be forthcoming on issues such as member communication, staff retirement options and investments.