UK - The Pensions Regulator (TPR) has published the first in a planned series of "good practice guidance" for the running of defined contribution (DC) schemes.
In the first instalment in the series, TPR outlined the retirement options for DC schemes, including the use of the Open Market Option (OMO) for annuities.
It claimed this is a "critical stage" in the retirement planning process as if the system does not work efficiently and the member does not receive the level of support they need then they "may receive an inappropriate annuity or it may be poor value for money".
TPR warned trustees they have a "duty to ensure that there is a process in place to convert the member's money purchase fund into a retirement income", and they should also ensure members are aware of their right to exercise the OMO.
The OMO allows members of a pension scheme to use their pension fund to "shop around" and buy an annuity from an insurance company of their choice - rather than staying with the pension scheme's process or chosen provider - which could then lead to a higher annual retirement income.
As a result, TPR said the "Retirement Options" guidance sets out good practice in key areas, and encourages trustees and employers of DC schemes to follow good practice which it believes will lead to informed decisions being taken by members.
The guidance applies to all registered occupational schemes that either offer benefits on a DC basis or provide a cash lump sum to provide a retirement income, except for group personal pensions (GPPs), and it follows TPR's decision to focus on the governance of DC schemes.
In its corporate plan for 2008-11, TPR confirmed it intends to improve its focus on five key areas for DC governance and regulation, particularly as it will take on supervisory responsibility for the new regime of personal accounts in 2012. (See earlier IPE story: Improving DC governance is key TPR target)
Chris Dobson, director of strategic development at TPR, said the new guidance is just the first in a series of "planned materials aimed specifically at helping those running DC schemes" and underlines the regulator's commitment to promoting good practice in DC schemes.
As a result, future installments in the series of guidance for DC schemes will include:
Investment practices guidance. "The Retirement Options guidance will help employers and trustees ensure they have effective processes in place, and inform members so they are able to make the best possible choices on their retirement income," added Dobson.
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