Pension schemes could be expected to set out exactly how they meet The Pensions Regulators principles for good scheme design and governance, or explain why they do not, in a move to steer employers away from poor value auto-enrolment schemes.
The voluntary 'comply or explain' approach is being considered by the regulator as it consults on how it can improve defined contribution pension provision and support the government's Reinvigorating workplace pensions strategy, published last month.
It could involve schemes using their annual report to disclose to employers, savers or the regulator how they incorporate the principles and features into their offering. If they do not, they would have to explain why this is the case.
Speaking in London today, TPR chair Michael O'Higgins said providing high-quality, value-for-money schemes, which could benefit from scale and good governance, was key to achieving the best outcome for people being auto-enrolled into workplace pensions.
'This simple truth is at the centre of our regulatory approach, and we will encourage the provision of schemes displaying the features necessary for good outcomes. More small schemes are not the answer, however,' he explained.
'So I want to say explicitly today that, in our view, workers should not be automatically enrolled into smaller schemes which do not benefit from economies of scale, tend to be poorly run and do not deliver value for money in the charges they make to members.'
He added: 'We also don't want to see auto-enrolment into legacy schemes operating on old administration platforms with higher charges and outmoded default funds, or into schemes that require a higher level of financial literacy such as Self-Invested Personal Pensions or Small Self-Administered Schemes. The latter would put workers in the position of being the trustee of their own scheme.'
His comments were welcomed by the National Association of Pension Funds. Chief executive Joanne Segars said: 'We share the Regulator's concerns about scale and value for money, and we echo their desire to see all workers auto-enrolled into a high-quality pension. There is no point in bringing people into a bad pension.
'The NAPF has been leading the way in helping employers make informed choices, particularly through its Pension Quality Mark, which is now being extended to multi-employer schemes.'