Pensions Update: Good Workplace DC - Pensions Regulator issues six guiding principles
6 December 2011
The Pensions Regulator has today announced six guiding principles for the good design and governance of workplace defined contribution (DC) pension provision. It is going to invite the pensions sector to take part in a dialogue on these principles, which will then form the basis of its regulatory approach to DC pensions going forward. To access the announcement click here.
The principles are designed to ensure that all necessary issues to create a high quality DC scheme are addressed when the scheme is first set up, and that the governance and administration of the scheme, and communication with scheme members, are suitably maintained and monitored on an on-going basis.
The six principles are as follows:
Design – schemes should be designed to be durable, fair and deliver good outcomes for members. This will include features such as the provision of a suitable default fund, transparent costs and charges, and protection of scheme assets.
Governance (at design stage) – a comprehensive scheme governance framework should be established when the scheme is set up, with clear accountabilities and responsibilities agreed and made transparent.
Understanding – those who are accountable for scheme decisions should understand their duties and be fit and proper to carry them out. This principle incorporates dealing with conflicts of interest.
Governance (on-going) – schemes should have effective governance throughout their lifecycle. This will include for example effective internal controls to control risks, and on-going monitoring to ensure the scheme continues to meet its objectives, and to be run in the best interests of members.
Administration – schemes should be well-administered with timely, accurate and comprehensive processes and records. The Regulator has previously published guidance on record keeping and this will be relevant to this principle.
Communication – communication with members should be designed and delivered to ensure members are able to make informed decisions about their retirement savings.
The Regulator issued a discussion paper earlier this year on enabling good member outcomes in work-based pension provision. To access that paper click here. In this the Regulator identified six elements necessary for members to receive good outcomes:
- Appropriate decisions with regards to pension contributions.
- Appropriate investment decisions.
- Efficient and effective administration of DC schemes.
- Protection of scheme assets.
- Value for money.
- Appropriate decisions on converting pension savings into a retirement income.
The guiding principles for good workplace DC that the Regulator has now issued are intended to assist schemes in delivering these six good member outcomes.
This press release highlights the Regulator's increasing focus on the regulation of DC schemes. This focus comes particularly in light of the automatic enrolment regime which comes into force from October 2012, and which will see high numbers of new savers into workplace pension schemes. Whilst these principles are aimed at new schemes which are set up to meet auto-enrolment requirements, the principles would seem, in practice, to apply equally to all DC schemes.
If you want to find out more about any of the issues in this publication please get in touch with one of our experts.
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