UK - Improved governance standards in defined contribution (DC) schemes and the design and development of its role in personal accounts are two of the key challenges The Pensions Regulator (TPR) will face over the next three years.

The organisation's corporate plan for 2008-2011 also revealed TPR's intention to complete the third year of the tri-annual scheme funding review, while developing and implementing an approach to DC scheme regulation.

The report, which also included TPR's business plan for 2008/09, sets out the organisation's view of the pensions landscape, and the strategic direction and outcomes to be achieved during the next three years.

Tony Hobman, chief executive of TPR, said the "overriding goal" remains to meet its continuing statutory objectives, while working "efficiently and in partnership" with the regulated community, government and key stakeholders.

However, he added: "We will also need to plan to meet emerging challenges arising from changes in the pensions landscape, such as the government's pensions reform agenda, to ensure our overall approach remains fit for purpose."

In the plan, TPR acknowledged that it is "likely to have an important part to play" in the government's plans to increase private pension saving in the UK, as it is proposed it will "take on the role of maximising employer compliance" with the reforms, including the introduction of personal accounts in 2012.

As a result, it admitted that a "key challenge over the next period is therefore likely to be the design and development of our new role", in particular the promotion of "high standards of service provision".
The corporate plan also emphasised TPR's focus on DC regulation, as its annual survey of DC governance in 2008 revealed 19% of schemes reported problems in recruiting trustees, compared to 15% in 2007.

However, less DC schemes, 7%, had problems in retaining trustees once they had been recruited, compared to 11% in 2007, while the number of schemes with a process in place to identify risks to members and the scheme increased from 59% to 72%.

That said, TPR revealed only 54% of small schemes assessed the quality of administration at least every three years, compared to 72% of medium schemes and 94% of larger scheme, which TPR claimed underlined its decision to place more focus on smaller DC schemes.

The corporate plan confirmed that TPR will continue to focus on five key areas for DC schemes - member understanding, administration, investment, charges, and retirement options - and where necessary it intends to issue guidance to "fill the gaps" not covered by other regulatory bodies such as the Financial Services Authority (FSA).

Although TPR pointed out in the "evolving" pensions landscape, where many DB schemes have closed in favour of DC or hybrid schemes, and on average 800,000 workers a year are entering contract based DC schemes, it needs to focus on "broader member understanding" of the products they are being offered.

However, the corporate plan also outlined TPR's intention for regulating DB schemes, including increased focus on longevity assumptions, and a reference to its increased powers in relation to business models that could represent "unacceptable levels of risk to pension scheme members and the PPF". [See earlier articles: TPR given power to impose mortality changes on 'imprudent' schemes; DWP extends TPR buyout powers]

It also added that while it had been "patient and facilitative" during the initial phase of the new regulations, in particular the submission of scheme recovery plans by the deadline, it warned that it is now starting to take a more "proactive stance" such as considering the use of powers "where appropriate" to ensure schemes and sponsoring employers "comply fully with the requirements of the legislation in a timely manner".

The publication of the corporate plan follows a report from the UK Public Accounts Committee on the progress of TPR since its establishment in 2005, which claimed that governance standards "remained low" particularly in money purchase and smaller schemes.

MPs on the committee also recommended TPR should increase the take-up of its Trustee Toolkit and guidance for trustees, as currently only 15% of trustees are registered on the training side and the "majority do not complete all the modules".

The committee's report also urged TPR to set specific targets for annual improvements in governance standards and warned TPR it "must intervene" and use its powers where schemes are "not governed well".

However, in its corporate plan TPR confirmed that it will be publishing a consultation document on its longer-term strategy in the summer of 2008, which will include details on new priorities for tailoring regulation to larger and smaller schemes, and improving the quality of information it holds on pension schemes.

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