Regulator calls for increased DC transparency

The Pensions Regulator has today (13 June) published a series of principles defining a good defined contribution pension which it believes likely to result in better income for savers in retirement.

Each proposed feature falls under one of six principles set out by the Pensions Regulator.

The first three principles are relevant to scheme set-up, while principles four through six relate to activities likely to remain relevant throughout the life of the scheme.

Principle 1: Schemes are designed to be durable, fair and deliver good outcomes for members.

Principle 2: A comprehensive scheme governance framework is established at set-up, with clear accountabilities and responsibilities agreed and made transparent.

Principle 3: Those who are accountable for scheme decisions and activity understand their duties and are fit and proper to carry them out.

Principle 4: Schemes benefit from effective governance and monitoring through their full lifecycle.

Principle 5: Schemes are well administered with timely, accurate and comprehensive processes and records.

Principle 6: Communication to members is designed and delivered to members to encourage member engagement so that they are able to make informed decisions about their retirement savings.

Darren Philp, director of policy at the National Association of Pension Funds, highlighted that although the document is a “useful summary of its thinking in this area”, Napf would have liked to a “bolder vision” from the regulator in setting out what a good DC scheme looks like. .

He said: “In a DC world where the risk is with the member, putting the member at the heart of the process is what counts in securing good outcomes.

“We think that this can only be achieved by good member governance. We need to ensure the interests of the member are protected.”

Peter McDonald, partner in PricewaterhouseCooper’s pensions practice, believes that if providers implement these proposals it could increase pension payouts for many by around 10 per cent over a lifetime, without members making extra contributions.

He said: “Greater transparency and governance will tend to reduce costs and flexible contribution structures encourage greater saving over the long term. The process identified to help members optimise their income at retirement will also boost payouts. This is great news for employees at a time of significant pressure on pension schemes.

Mr McDonald hopes that this framework will allow providers and employers to begin rebuilding trust in pensions, centred on the commitment to making pension arrangements simple and durable.

He added: “This is a wake-up call for employers with defined contribution pension schemes as many will need to review the level of services they provide to members, including the charges, the investment fund range offered and the level of support provided to members at retirement.

“Employers and pension providers will now have to work much harder to demonstrate that their schemes are meeting the new principles and the detailed draft features outlined by the regulator.”