UK accountants and the Pensions Regulator have set out their framework for ensuring the quality of defined contribution (DC) ‘master trusts’, which will form a key part of the country’s auto-enrolment occupational pensions system.
But the National Association of Pension Funds (NAPF) said a more radical overhaul of workplace pensions regulation was needed.
The Institute of Chartered Accountants in England and Wales (ICAEW) published a new draft assurance framework in conjunction with the Pensions Regulator, aimed at helping trustees of DC master trusts to show clients their scheme is well run.
According to the draft, master trusts are expected to get independent assurance from a chartered accountant every year.
The framework focuses on six areas – main characteristics of scheme design, governance, the people accountable for the scheme, ongoing governance and monitoring, administration and communication to members.
It sets out a number of ‘control objectives’, based on many of the regulator’s DC principles and quality features, the two bodies said.
Objectives on standards of practice for trustees should be underpinned by tough control procedures, they said.
Andrew Warwick-Thompson, executive director for DC, governance and administration at the Pensions Regulator, said: “Gaining independent assurance will help manage confidence in this growing segment of the DC market and demonstrate the presence of governance and administration standards that meet our DC code and regulatory guidance.”
Although the framework has been developed for master trusts, the regulator and the ICAEW said other larger DC schemes – such as group schemes – may want to adopt the framework as best practice.
“The current regulatory landscape is a mess, with different regulators and different standards for different types of schemes.”
The consultation closes on 16 December, with final guidance planned for publication in the spring of 2014.
The NAPF said it welcomed the Pension Regulator and audit profession’s focus on improving the quality of master trusts, but criticised the excessive complexity of occupational pensions oversight in the UK.
The association’s chief executive Joanne Segars said: “Master trusts are a good choice for employers looking for a scheme for auto-enrolment, and the sector is growing rapidly.”
But she said there were very few barriers to setting up a master trust at the moment, and no guarantee they are all as well run as they should be.
“The current regulatory landscape is a mess, with different regulators and different standards for different types of schemes,” she said.
She said there was a risk that regulating one type of scheme more heavily would have unintended consequences, and that, with weak enforcement powers, there was no guarantee that badly run schemes would be forced to improve.
“What is needed is a more radical overhaul of the regulation of workplace pension schemes with a single regulator, a greater focus on ensuring strong, independent governance and higher barriers to entry,” Segars said.
She said the NAPF had already launched its Pension Quality Mark READY scheme to help employers identify good master trusts.