The Pensions Regulator has set out what it plans to do to ensure defined contribution pension schemes deliver the best possible outcome for savers under auto-enrolment.
A raft of documents published for consultation today aim to establish a new regulatory framework for the governance and administration of DC schemes. These include a new code of practice, accompanying regulatory guidance and a regulatory approach document.
Both the code and guidance are underpinned by the Regulator's six principles and an updated version of the 31 quality features representing the standards and behaviours trustees are expected to attain. Displaying these features, which relate to areas such as contributions and investments, will help scheme trustees to demonstrate compliance with their legal requirements as well as incorporating best practice.
Under the proposed new regime, schemes will be expected to 'comply or explain' by adopting a disclosure framework to show how they meet the quality features, and to then explain any areas where they don't.
Bill Galvin, chief executive of The Pensions Regulator, 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
'Members bear risks where DC schemes perform poorly. 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.
Last week, the regulator published research indicating that larger DC schemes were significantly more likely to display the features it expects than smaller schemes. Galvin today noted that smaller schemes could find they want to change their approach to meet its new regulatory requirements.
'Where we find schemes fall short of the standards we have set out, we will expect them to improve,' he said. 'Some smaller schemes may find this challenging and decide that the interests of their members would be better served in another type of arrangement.'
Where schemes do not meet the standards expected, the regulator can take action such as issuing compliance notices, fines and removing trustees and replacing them with new ones.
To ensure similar levels of protection in both trust-based pension schemes and work-based personal pensions - also known as contract-based schemes - the regulator is working with the Financial Services Authority, which shares regulatory responsibility in the latter area.
Later this year the two bodies plan to agree joint working protocols to determine how breaches of law should be dealt with between the two regulators to ensure a 'coherent and effective' regime. Initial analysis published by The Pensions Regulator today reveals a good alignment between its DC quality features and the FSA's requirements for contract-based pensions.
The CBI welcomed the joint working between The Pensions Regulator and FSA, which it said would help to avoid any confusion and duplication in the regulation of contract-based schemes.
However, Neil Carberry, director for employment and skills at the business body, added: 'Ultimately, however, the regulator needs to tread carefully, as developing high levels of saving in DC schemes, above the statutory level, depends on avoiding the over-regulation that damaged defined benefit schemes.'
