Out-Law News 3 min. read
10 Jan 2013, 2:32 pm
It is consulting on new standards for these schemes in areas such as contributions, investments, government standards, administration, value for money, converting a pension pot into a retirement income and member communications.
The Government has estimated that between five and eight million people will be saving more towards their retirement or saving for the first time under its automatic enrolment programme, which began for the largest employers in October last year. The vast majority of those savers will be enrolled into DC schemes, under which the benefits provided on retirement depend on the performance of the saver's investment.
All companies with 500 employees or more will have begun auto-enrolment by the end of 2013, while 'staging dates' for smaller companies run until April 2017.
Bill Galvin, chief executive of the Pensions Regulator, said that employers would be reassured by schemes which were able to demonstrate how they would comply with the new principles.
"Members bear risks where DC schemes perform poorly," he said. "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," he said.
Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that what was being proposed by the regulator would help "ensure schemes deliver" for the many workers who were joining a pension scheme for the first time as a result of auto-enrolment.
"The thrust is clear: the Pensions Regulator is throwing all its weight into encouraging good practice in scheme design and operation, and that good practice goes beyond strict legal requirements," he said.
"One of the key developments is the regulator's expectation that occupational pension scheme trustees voluntarily disclose how they are complying with the new guidelines. It also wants to raise employers' awareness of its recommendations, so that they are better able to choose a good scheme for their workers. The pensions industry will take some time to digest the detail, work out what is feasible and assess the cost implications," he said.
Among the measures proposed by the regulator is the introduction of a code of practice for schemes, setting out standards of conduct and practice and providing practical guidance on what is required by the legislation. The regulator will use what is in the code as a reference to help it decide whether enforcement action is necessary. Actions open to it if trustees fall short of expected standards include the issuing of enforcement notices, fines and removing trustees and replacing them with new ones.
Schemes will be expected to provide a disclosure framework on a 'comply or explain' basis, setting out how they comply with regulatory standards or explaining any inconsistencies. 'Master trusts', where scheme providers manage a DC scheme for several employers under a single trust arrangement, will be expected to obtain independent assurance demonstrating that they comply with the new standards.
Pensions law expert Simon Tyler said the proposed new requirement for master trusts was a "surprising development".
"Master trusts have already proved themselves a hit with employers for auto-enrolment, and they fit in with the Pensions Regulator's preference for large schemes," he said. "The regulator seems to have taken fright at their success and questioned their governance structure because it differs from that of more traditional occupational pension schemes."
As part of the announcement, the regulator also said that it was "working together" with financial services regulator the Financial Services Authority (FSA) to ensure similar levels of protection and coherent regulation and enforcement across all work-based pension schemes. The Pensions Regulator regulates all work-based pension schemes, but shares responsibility for so-called 'contract-based' schemes with the FSA. According to its initial analysis, there is "good alignment" between the new standards and FSA requirements.
"A closer working relationship between the Pensions Regulator and the FSA is likely to have a long-term impact on personal pension scheme providers," Tyler said. "Providers are already expected to ensure that their pension products continue to meet the needs of their target market. This quasi-trustee role may well develop further, resulting in tighter protection for members, but at a cost that remains to be assessed."
