UK - The Pensions Regulator has signalled its intention to take a tougher stance on defined contribution (DC) pensions governance, with a particular focus on retirement options and processes and employer engagement.
In the statement entitled Engaged employers and informed retirement choices: key to good outcomes for members of DC pensions, TPR revealed it is focusing on these two aspects of DC provision following the impact of the current economic downturn on asset values and the "imminence of the 2012 reforms".
It claimed a "key priority" going forward is to ensure trustees and providers are enabling members about to retire to make the right choices, such as allowing members access to the open market option (OMO) for annuity purchases.
TPR revealed research from its 2009 governance survey - to be published later this year - showed only a third of trust-based DC schemes have reviewed their retirement processes in the last year, and another third have not reviewed them for three years while in some cases scheme have never looked at their retirement processes.
To address this issue, the regulator has updated its member leaflet on retirement choices to help trustees ensure their pre-retirement literature is "of a good standard", and revealed it is "reviewing the retirement processes and literature in a sample of trust-based DC schemes" and if it identifies any shortcomings it will expect trustees to make improvements.
But it warned: "If appropriate action is not taken, we will use our enforcement powers if necessary."
On the issue of employer engagement, TPR acknowledged employer concerns regarding the provision of pension information and revealed a joint guide from TPR and the Financial Services Authority (FSA) - which has responsibility for contract-based DC schemes - will be published shortly informing employers of how and what they can tell staff about the scheme and how the right governance structures can be implemented.
It added: "We encourage trustees, employers, providers and advisers to ensure they have clearly defined responsibilities for the governance and management of occupational pension arrangements," which include reviewing scheme administration, investment options and communications, although recent research by Watson Wyatt suggested certain constraints were stopping trustees from focusing on 'qualitative governance' issues. (See earlier IPE article: DC trustees forced to focus on admin)
Tony Hobman, chief executive of TPR, said: "It is more important than ever in these challenging economic times for members to make the right decisions to maximise value for money at retirement.
"Our work on DC will enable trustees, employers, advisers and providers to improve the outcomes for DC members. In the run-up to 2012 we are focusing on providing more education to assist employers with their pension provision and are looking at the standards in key processes for DC pensions. We are willing to enforce better practice, if we need to," he added.
Commenting on the developments, Rachel Vahey, head of pensions development at Aegon UK, said: "Encouraging employer involvement can have huge benefits for scheme members. However, TPR should be aware of the constraints and challenges some, especially smaller, employers face. A regulatory approach that recognises this and doesn't enforce a one-size-fits-all framework would be welcome."
She warned it would be a "hollow success" to force small employers to do things they are reluctant, or not well-placed, to do in the interests of protecting members' benefits, only for these employers to lose their commitment to providing good pensions.
TPR's statement coincided with the publication of its first analysis of the DC trust-based landscape - 'DC Trust: A presentation of scheme return data' - which complements the 'Purple Book' of defined benefit (DB) pension data by giving a "snapshot of the current shape of DC trust-based provision".
Findings showed there are 5,800 trust-based DC schemes with more than 12 members at the end of 2008, of which 22% are hybrid schemes, although the majority of schemes, 69%, have less than 100 members.
In total, DC-style membership reached 2.37 million, with 56% of these listed as deferred members and 4% as pensioners - those who take an annuity in the name of the scheme - although overall 54% of the schemes are open to new members and 70% still allow future contributions.
The average annual contribution per active member is around £4,400 (€5,106), with the total annual figure reaching £2.1bn, although the average employer to employee contribution ratio is 26% from members and 74% from employers. For the largest schemes the employer contribution rises to 84% but then falls to 64% in schemes where membership is below 100.
Of the 100 largest DC schemes, 59 are hybrid-dual section, 82 are open to new members and 97 still allow future contributions, while at the other extreme there were 50,300 DC schemes with less than 12 members registered with TPR, of which only 300 were hybrid or dual section schemes, while 80% were open to new members and 85% allowed future contributions.
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