In July, the Pensions Regulator issued a statement: "engaged employers and informed retirement choices – key to good outcomes for members of defined contribution pensions." The focus is twofold:
- Enabling members to make informed choices at retirement; and
- Improving the quality of employer engagement in defined contribution pension provision.
Retirement options and processes
The Regulator notes that it has a particular focus on the standards of pre-retirement processes and member communications in relation to trust-based schemes. The statement also notes that the Regulator's "key priority" is to ensure that trustees and providers are enabling retiring members to make the right choices. The Regulator expresses concern that only a third of trust-based schemes have reviewed their retirement processes in the past year; and another third have not reviewed them for over three years. Hence:
- The Regulator has updated its member leaflet on retirement choices, which describes the range of options available to a member approaching retirement, including annuity types and other alternatives.
- The Regulator is also reviewing the retirement processes and literature in a sample of trust-based defined contribution schemes. It expects trustees to make improvements where shortcomings are apparent; if no improvements are made then the Regulator suggests that it will use its enforcement powers. The Regulator will report on its findings later this year.
The statement reminds trustees of the Regulator's "Trustee Toolkit" to help with trustee training and to provide the requisite knowledge and understanding.
Increasing employer engagement
The Regulator cites its aim as improving employer engagement with minimal additional burden. It confirms that it will provide guidance for employers on how and what they can tell their employees about the pension they offer, as well as explaining how the right governance structures can be put in place for workplace pension schemes:
- The Regulator is working with the Financial Services Authority in order to assuage employer concerns about incurring liability when they are, in fact, giving information and support to members. A guide will be published later this year.
- The Regulator encourages trustees, employers, providers and advisers to ensure that they have clearly defined responsibilities for the governance and management of occupational pension arrangements. This includes responsibility for regularly monitoring charges, reviewing scheme administration and investment options and producing effective member communications. The Regulator notes that the trustees have lead responsibility for these activities in relation to trust-based schemes; in contract-based schemes, the Regulator encourages employers to work closely with their providers and advisers, and to consider establishing a governance committee or making other arrangements to assist with these tasks.
Almost as a footnote, the statement refers to the auto-enrolment regime, planned for 2012, and notes that the Regulator's focus will be on making it as easy as possible for employers to comply with their new duties while ensuring that there is a robust regulatory framework in place.