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9969
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7518
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Description:
Claire van Rees, Associate, Director at Sackers discusses the recent publications from the DWP and The Pensions Regulator on DC pensions schemes.
Bookmarks:
0|New Code of Practice for DC Schemes
95|Trustees and the code
208|Demonstrating compliance
263|Less mention of master trusts
326|Work based personal pensions
414|The horizon
Duration:
00:08:35
Recorded Date:
25 July 2013
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Transcript:
PRESENTER: 2013 has seen a raft of publications from the DWP and The Pensions Regulator when it comes to DC pensions, to discuss these I’m joined now by Claire van Rees who is Associate Director at Sackers. Claire, why is there so much interest in regulation of DC pensions at the moment?
CLAIRE VAN REES: Well essentially I think it’s because of the advent of auto-enrolment. So over the next few years we’re going to have millions of extra workers being put into pension schemes, usually defined contribution, who’ve never been in pension saving before, and one of the features of auto-enrolment is that you’re not allowed to force them to make choices about things like the contributions that they make or where they want to invest them. So you’re going to have these people coming in who haven’t necessarily made any choice about where they want to be or how they’re investing.
And so it suddenly becomes very important that the arrangements that they’re being auto-enrolled into are good quality, well governed and give them the best possible chance of getting a good outcome from their pension saving, because if you don’t have that then it potentially undermines auto-enrolment as a concept. And so against that backdrop we’ve had the Regulator doing a lot of work in the last few years looking at improving DC governance, and that’s culminated most recently in the issuance of a DC code of practice, which is underpinned by six principles that the Regulator thinks are very important and lots of quality features that it thinks are likely to be present in good quality DC schemes.
PRESENTER: What does the new DC code and its accompanying guidance mean for trustees of DC schemes?
CLAIRE VAN REES: Well, I think the good news is that for well-run schemes it’s probably not actually going to mean that much in terms of a change of behaviour, because they’re probably already going to be doing a lot of the stuff that the Regulator wants to see them doing. A lot of the stuff in the code is actually just repeating stuff from other codes of practice that have already been out there for quite a long time. So for example there’s sections on trustee knowledge and understanding and internal controls, and what the code’s doing is drawing it together in one place and giving a DC spin on it, and so the guidance on how to comply with the law is much more focussed on how you comply in the context of a DC scheme, so well-run schemes should already be doing that.
I think for the ones who’ve taken their eye off the ball a little bit there’s going to be a bit more work to do, but the code of practice and the guidance that’s going to accompany it should really help them in terms of showing them what’s expected of them. It’s interesting that the Regulator actually seems to think that small schemes may find it very difficult to comply with the code and the guidance and even suggests that they might want to consider whether actually their members would be better off in some different kind of arrangement, because I think it’s very strongly of the view that you really maximise the benefit from DC in the bigger structures and the bigger pension schemes.
So I think there’s not going to be an awful lot more to do, but one thing that will be different is that the Regulator’s got very much a “comply or explain” approach to compliance with the code, and what it wants to see is trustees doing a voluntary disclosure of the extent to which they comply with the DC principles and the quality features, and that’s going to be a bit different.
PRESENTER: What’s the best plan of attack for trustees when it comes to demonstrating compliance?
CLAIRE VAN REES: Well I think quite often it’s very helpful to have some kind of documentary evidence of what you’ve been doing, and again I think the well-run schemes ought already to have a lot of that in place. So for example in the context of trustee knowledge and understanding you’d typically expect there to be some kind of register of the training that trustees have had demonstrating that they’ve had proper training and perhaps annual questionnaires about where they think the gaps are. And so things like that along with conflicts of interest registers and risk registers, that kind of stuff, there’ll be a lot of documents out there that they should already have that they can use to demonstrate how they’ve complied. And in terms of identifying the gaps they can perhaps carry out some kind of gap analysis looking at and comparing the code and the guidance and the quality features against what they do in practice.
PRESENTER: The final version of the code makes far fewer references to master trusts, why is that?
CLAIRE VAN REES: I think that’s partly a feature of the fact that they tried to slim down the code and make it a bit easier to read, but also the fact that there’s a recognition that master trusts are quite a different beast from your average occupational DC pension scheme, and what the Regulator wants to do, is it’s pushing forward with an independent assurance framework. So the idea being that if you’re a master trust there’ll be some kind of independent assurance demonstrating that you are a good quality scheme and that will focus very much on the quality features that are specifically relevant to master trusts and the risk that they face.
So the Regulator’s doing a lot of work over the summer with the Institute of Chartered Accountants in England and Wales, and the master trust providers, to try and come up with this independent assurance framework with a view to some consultation in the autumn on that. And so essentially I think there’s a recognition that by that, that gives less need for there to be a lot of detailed guidance in the code.
PRESENTER: What plans are there for regulating work-based personal pensions?
CLAIRE VAN REES: Well, no plans at the moment for any major changes. And it’s a criticism that quite often comes up that the division in regulation between occupational pension schemes and personal pension schemes, whereby the Regulator does occupational pension schemes, but the Financial Conduct Authority has primary responsibility for a lot of the regulation of personal pension schemes, means that there’s a risk of gaps and a risk that the Financial Conduct Authority regime will be less onerous potentially than the Regulator’s regime and you’ll end up with members getting different standards depending on what kind of arrangement they end up in. But at the time that it consulted on the code of practice, the Regulator actually did a bit of work looking at that and produced a document analysing where it thought the quality features in the FCA’s regulatory regime, and so it’s concluded that actually it doesn’t think there are gaps and it does think the FCA regime is adequate for now.
So they’re not planning to make any major changes to the regulation. I think what we are going to see is a joint document from the Regulator and the FCA that’s going to give a bit more detail about the regulatory regime of work-based personal pension plans, and that’s due in the autumn. Also the Regulator’s due to be publishing some guidance for employers about setting up governance committees for the work-based personal pension plans that it might be putting in place.
PRESENTER: What’s on the horizon for DC?
CLAIRE VAN REES: Well, I think the autumn’s going to be very busy. We’ve got the code of practice currently with Parliament, but it’s due to come into force later in the autumn. Alongside that there’ll be some updated guidance published together with an update to the Regulator’s regulatory approach on regulating workplace DC pensions. In terms of other stuff, the DWP’s recently published a call for evidence about quality standards in DC arrangements, and the idea behind that seems to be that they’re looking at legislating to set some minimum standards for DC personal pensions and occupational pensions, and I think that’s very much a concern about whether or not auto-enrolment schemes are going to be good enough.
On other matters, we’ve got transfers of small pots still rumbling away, so there’s a legislative framework for that in the current Pensions Bill, but there’s an awful lot of detail still to be ironed out about how forcing people to transfer small pots automatically between arrangements would actually work, and the DWP’s very keen for the industry to input on that, and to let them know about problems but also solutions for how to do that, and tied in with that you’ve also got the abolition of refunds of contributions from DC occupational pension arrangements which is likely to be in next year’s Pensions Act to bring it into line with personal pension arrangements.
PRESENTER: Claire van Rees, thank you very much.
CLAIRE VAN REES: Thanks.
PRESENTER: He’s just taken over as President of the PMI and with his thoughts and ideas for the future here’s Paul Couchman. Paul, first of all what are the key issues that face the pensions industry?
PAUL COUCHMAN: I think the key issue is really adapting to the change that’s going on and everyone is aware now that auto-enrolment is with us. The major employers met their staging dates last October, and as we go through 2013, ’14 and ’15 all employers in the UK will have to have a pension scheme in place for their employees. So it’s a major change to the industry. Allied to the fact that obviously there are existing pension arrangements in the UK, final salary pension schemes are pretty much closed to new entrants outside the public sector, but they have become legacy-type issues, because these schemes now are closed to new entrants, they’re closed to future service, and so there is an issue now for companies who sponsor those schemes to manage the legacy so that they can actually close those schemes in due course by buying out the liabilities.
Alongside that there’s defined contribution, and I think people forget that defined contribution has been with us for a long long time. It’s not the new idea, a lot of companies have had defined contribution schemes in the past, but clearly the pace of change has meant that a lot of companies are new to defined contribution, and that brings its own challenges in terms of the design of those schemes, the ongoing governance and then particularly important providing financial education to members who have to make investment choices probably for the first time in their careers. So a rapidly changing landscape in pensions at the moment.
PRESENTER: Given all this complexity how’s the PMI adapting to it?
PAUL COUCHMAN: It’s an interesting issue, and it’s one that’s been exercising us at PMI for a while now and having to take the lead if you like for the institute going forward it’s something that we’ve been talking about internally, and the reality is we have to adapt the examinations and the training that we provide to meet the requirements of the changing industry. And we’ve seen some of that over the last couple of years. We’ve successfully introduced new qualifications, particularly around auto-enrolment, the Certificate in Pensions auto-enrolment we introduced just over a year ago has been a real success. We’ve had over 600 people sign up for that, and about 300 have already passed their exams and have got their certificates. We’ve had new exams around providing support for members at retirement, which is another issue particularly around DC schemes, and we’re also heavily involved in negotiations with Imperial College to launch the master’s degree that we’ve agreed we will introduce hopefully next year.
So it’s a case of adapting qualifications that we have to meet the changes. It’s looking for new areas that our members are starting to work in and then looking at ways that we can meet those requirements as the landscape changes.
PRESENTER: So how do you see the industry landscape changing over the next four or five years?
PAUL COUCHMAN: It’s clearly going to be more of the same, but the switch to defined contribution obviously will be gathering pace. All employers will be auto-enrolled in five years’ time. So every single employer in the UK will have to have some pension provision in place, and the reality is the vast majority of that is going to be defined contribution. So they will be looking at the different types of defined contribution schemes available in the marketplace and they will be looking at the right one for the right structure of their business.
PRESENTER: And what do you have planned during your time as President to prepare the PMI for the changes that are coming?
PAUL COUCHMAN: It’s an interesting time. The reality is for the first time in a few years we had more candidates for vacancies on Council, the Vice President and President this year, and I think a number of people in the industry have been engaged if you like in the challenges facing the PMI. So we’ve got some high quality new members of PMI Council for instance and also a new Vice President in Gerry Degaute to support me. And I’m really confident we’ve got the right team in place to really look at driving the PMI forward. And I think from my point of view it’s also a challenge. I think people forget sometimes that the PMI is actually a not-for-profit business. We have a board in place which I’m now the non-exec chairman of. We’ve got 19 staff and a turnover of £2½million, so it’s actually a business that we have to run as well as just looking at the qualifications and the member support that we provide through the Institute.
PRESENTER: So what can PMI members do to help themselves and the PMI?
PAUL COUCHMAN: Interesting point, I think it’s all about engagement really, because a lot of people’s jobs in the industry are changing. They’re being asked to take on new types of roles, having to engage in different areas of the business that they might not have done previously, and what we want really is for them to engage with us. And if we are not providing the right sort of qualifications or support then let us know, because I think this is all about trying to support the membership as the industry changes.
PRESENTER: Paul Couchman, thank you very much.
PAUL COUCHMAN: Okay, thank you.
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