The Pensions Regulator's new code of practice for trustees of defined contribution trust-based pension schemes has come into force
It sets out practical guidance on how pension trustees can meet the underlying requirements of pension's legislation.
The regulator said it was concerned that opaque costs and charges deducted from a member's fund could have a significant impact upon the value of their pension and wanted to help trustees capture the total cost and benefits of scheme membership in a way that will demonstrate its value for money for members.
From next year, the regulator plans to undertake thematic reviews of the extent to which trust-based DC schemes are compliant with pensions legislation and associated good practice in different areas. Where necessary, it would take enforcement action to address breaches in the underlying law.
TPR said it has also published information to coincide with the code coming into effect, including its compliance and enforcement policy for DC casework and updated good practice guidance on areas not covered by the code.
Andrew Warwick-Thompson, TPR's executive director for DC, governance and administration, said: '[Now], we expect DC trustees to assess their scheme against the standards set out in the DC code. Our aim is to protect retirement savers and to ensure their money is invested in good quality schemes that are well-run in the members' best interests. Schemes that fall short of these standards should expect some difficult questions, and they may incur enforcement action in order to rectify breaches in pensions law.'
Professionals welcomed the clarity provided by TPR.
Nick Cook, senior consultant at Towers Watson, noted that increased focus on DC pension schemes had never been more crucial and the guidance was an important step.
'The number of DC members, total DC contributions and DC assets are increasing at an exponential rate yet the level of understanding and engagement of people in DC schemes seems to remain stubbornly low. DC members need some help, and the regulator's clarification... of its expectations should be the kick start that is needed to help make DC schemes better and get people further up the good outcomes ladder,' said Cook.
However, he warned that it was important trustees do not view it as a tick-box exercise.
At Hymans Robertson, Lee Hollingworth, partner and head of DC Consulting, said the guidance was helpful but DC had to 'to shake off the perception of being the poor relation of DB'
He said a key element of this was to demonstrate to members that DC schemes adhere to the very highest standards and quality features.
'The regulator has rightly focused on the need to provide DC pensions which are good value for money. We agree that high charges eat into your pension pot and that's why we support a cap on charges. There is absolutely no reason why some scheme members should languish in high-charging, legacy funds,' said Hollingworth.
'Similarly, the Pensions Regulator is right to expect trustees to shop around for the best deal for their members. Consumers shop around for everything else in life - from car insurance to their next holiday - there is no reason why trustees shouldn't shop around too.