The Pensions Regulator’s defined contribution Code of Practice and Regulatory Guidance, which came into force today, should not be seen as just a tick-box exercise according to Towers Watson.
The code and accompanying guidance on the governance of trust-based DC schemes reflects the Regulator’s six DC principles, which are underpinned by 31 DC quality features that detail the activities, behaviours and control processes that the Regulator expects. The regulator wishes to see good member outcomes and has said that trustees should be able to demonstrate to their members that they have a ‘good scheme’ and to voluntarily disclose any potential inconsistencies with the quality features. Materials published today reiterate that it wants trustees to produce governance statements and to make these available to the members and the employer.
Nick Cook, senior consultant at Towers Watson, said: “Increased focus on DC pension schemes has never been more crucial. 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 today 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.
“The code and guidance is an important step in addressing the governance issue but it is important that trustees do not view it as a ‘tick the 31 boxes and move on to something else’ exercise. The greatest value (and ultimately best member outcomes) will be achieved where this new guidance is incorporated into an ongoing programme of assessment, alignment of the DC and corporate strategy with scheme-specific objectives and success factors, and then periodic reviews to ensure the desired progress is being met within agreed timescales.
“Notwithstanding the fact that clearly legal and compliance duties must be adhered to immediately, arguably it is the practices above and beyond the core legal duties that bring the greatest value, return on investment and, ultimately, improvement in member outcomes. Consequently, DC schemes may take a while to develop to their full potential, although some are already higher up the ladder than others. The code and guidance published today acts as a good catalyst to facilitate this.”
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