As auto-enrolment duties start to apply to more employers, many are faced with questions about what sort of pension scheme they should be using to meet these duties.
In a number of public statements, and in its guidance, TPR has said employers should use "high-quality schemes" to meet their obligations. At the NAPF Trustee Conference on 4 December, TPR set out some useful pointers as to what this term means. Full details of TPR's speech are available here: http://www.thepensionsregulator.gov.uk/press/enabling-good-outcomes-in-dc-pensions.aspx
So what is not a "high-quality scheme"?
TPR views small-scale schemes as inherently unattractive for auto-enrolment due to lack of scale and associated high costs. Adopting an existing small occupational scheme seems unlikely to meet TPR's expectations unless it is very well run.
Additionally, TPR is not in favour of employers using self-invested scheme structures, as this puts too much burden on the member. It does accept that these could be appropriate for executives, but that is hardly a demographic that auto-enrolment is intended to catch.
And what is?
TPR wants employers to enrol their workers into large employer-sponsored schemes, "master trusts", and contract-based schemes. Large-scale, legacy schemes operating on old administration platforms with higher charges and outmoded default funds are not the answer though. Rather, TPR wants employers to use schemes which:
- have the scale required to keep costs down and governance levels up; and
- subscribe to its principles and features for a well-governed scheme – these are set out in its six principles for the design and governance of good workplace DC schemes, published on TPR's website.
How will TPR help employers find these high-quality schemes?
At the NAPF Trustee Conference, Michael O'Higgins, TPR Chair, said:
"We are working with the pensions sector to encourage design and delivery of high-quality, value for money schemes, so that when individuals are automatically enrolled they stand the best chance of getting a good outcome from their retirement savings.
Secondly, we want to help employers to become informed purchasers of pension products via our automatic enrolment communications – steering them towards products that can deliver good outcomes for their workers."
To assist employers, TPR has published a guide "Selecting a good automatic enrolment scheme" with a set of questions which an employer can ask its pension provider for the purposes of confirming that they can comply with TPR's expectations.
Michael O'Higgins also said that, in the longer term, TPR will consult on its approach to DC pension schemes.