Trustees of defined contribution trust-based pension schemes will be expected to demonstrate how they comply with the new code of practice that comes into effect today.
View more information about the new defined contribution code and guidance.
DC schemes are expected to become the dominant form of workplace pension provision as a result of automatic enrolment. The Pensions Regulator wants to see all consumers enrolled into well-managed schemes that can offer good outcomes.
The code, which was consulted upon earlier this year, sets out practical guidance on how pension trustees can meet the underlying requirements of pensions legislation. It comes into effect today, having been laid before Parliament and the Northern Ireland Assembly in July.
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 will take enforcement action to address breaches in the underlying law.
To coincide with the code coming into effect, the regulator has published a suite of information including its compliance and enforcement policy for DC casework and updated good practice guidance on areas not covered by the code (for example those areas where it is not legislation but industry practice that sets the standard). These documents were also consulted upon earlier this year.
Andrew Warwick-Thompson, The Pensions Regulator’s executive director for DC, governance and administration, said:
“From today, 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.
“We also urge professional advisers to familiarise themselves with the details of the code and guidance, as they have a key role to play in helping trustees review their scheme and make improvements to its quality where necessary.”
The regulator is concerned that opaque costs and charges deducted from a member’s fund can have a significant impact upon the value of their pension and wants to help trustees capture the total cost and benefits of scheme membership in a way that will demonstrate its value for money for members. The good practice guidance published today includes practical material to help trustees to undertake this work and assess their scheme with others in the market. This will help trustees to work with their services providers to get a better deal for members, or if necessary look elsewhere. The regulator regards this as an initial step and intends to have further discussions with the pensions sector next year on how schemes can capture and report their value for money information.
To help pension trustees to run their schemes to a high standard, the regulator has previously published a set of 31 quality features (some of which are present in legislation, others in industry good practice). Next year the regulator also intends to publish a template ‘comply or explain’ governance statement that DC trustees can use to inform scheme members, the employer and the regulator whether they meet the DC quality features (or, where the features are not fully present, how their approach is in members’ interests).
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