The Regulator has issued consultation on the regulation of work-based DC schemes. There are four documents – the consultation document, draft regulatory approach document, draft code of practice and draft regulatory guidance. The code and guidance will apply only to occupational schemes; these aspects of work-based personal pension schemes (WBPPS) are subject to regulation by the FSA.

The documents can all be found here

The starting point (for both occupational and WBPPS) is the six principles of DC provision.

Click here to view table.

The Regulatory Approach document includes a full list of the DC quality features expected by the Regulator, including changes from those previously published. Schemes that can demonstrate that they include the quality features are more likely to meet the standards of governance and administration expected by the Regulator. Failure to meet them will be a risk indicator when assessing compliance.

Schemes are split into five categories and the particular risks and issues for each category are identified. The categories are:

  • master trusts (multi-employer schemes with non-associated employers);
  • large employer-sponsored schemes;
  • small and medium-sized schemes;
  • micro schemes; and
  • work-based personal pensions (contract-based schemes).

Code of practice

The draft DC code provides practical guidance for trustees about the requirements of pensions legislation. It sets out those DC quality features (see above) underpinned by legislation and gives practical guidance on how trustees can demonstrate that they have achieved the relevant standard. The code will be a reference point for the Regulator when considering enforcement action. It includes areas already covered by codes or guidance (e.g. TKU, MNTs, reporting breaches, record-keeping, internal controls etc.) and addresses some new areas including:

  • codifying previously published standards which enable trustees to evidence compliance with the law on internal controls, risk management and record-keeping;
  • stating that all quality occupational DC trust-based pension schemes should offer a default fund;
  • identifying how the DC quality features apply to master trusts; and
  • identifying the higher expectation placed on professional trustees. The code requires newly appointed professional trustees to have a PMI qualification or equivalent prior to being appointed.

There is a section on conflicts of interest, including conflicts between the trustee and the adviser and conflicts in relation to master trusts.

Regulatory guidance

The draft guidance covers matters not included in the code. The key topics covered are:

  • assessing whether a scheme provides value for money;
  • transparency of costs and charges for members and employers; and
  • offering flexible contribution structures for members.

Consultation closes on 28 March 2013.