Matthew Swynnerton explains what The Pensions Regulator considers to be a suitable DC scheme for auto-enrolment

The first question for schemes with ‘automatic enrolment preparation’ as their New Year’s resolution is: where to start? Establishing a qualifying scheme is the foundation for ensuring compliance with the new duties.

As most employers are expected to use a defined contribution (DC) scheme for these purposes, The Pensions Regulator (TPR) has produced an unprecedented amount of guidance on DC schemes having previously described the standard of governance seen in DC schemes as ‘mixed’.

Having established its six principles of good workplace DC in 2011, TPR in December 2012 voiced its intention to consult in 2013 on the creation of a code of practice operated on a ‘comply or explain’ basis. TPR also issued an updated five-step checklist for trustees on commencing automatic enrolment. From these documents, it is clear that TPR regards trustees as crucial to successful automatic enrolment through the implementation and maintenance of a robust governance framework.

The six principles of good workplace DC
TPR first clarified the role of trustees to the automatic enrolment process when it distilled its governance objectives into six key principles. TPR expects that DC schemes should deliver good outcomes for members; have a robust governance framework; have fit and proper decision-makers; be subject to on-going monitoring; maintain good record keeping and communicate with members about their retirement savings.

Trustees should already be familiar with most of these requirements, particularly in relation to record-keeping and monitoring. However, the principles relating to achieving good member outcomes may be unfamiliar and trustees may find it difficult to balance assisting members without providing advice. It would be prudent for trustees themselves to take advice so they do not overstep their duties.

Enabling automatic enrolment into high-quality DC schemes
Building on its objective to help employees achieve good member outcomes through DC schemes, this statement from TPR in December formalised how it intends to steer employers towards using high quality DC schemes. TPR intends to introduce a code of practice setting out the existing legal duties of DC trustees and also on supporting guidance on good member outcomes.

TPR plans to launch a consultation in 2013 on operating this code on a voluntary ‘comply or explain’ approach. This would entail schemes disclosing how they have complied with the governance standards stipulated by TPR, or explaining why this is not the case. This would assist in establishing clear duties for trustees and provide a level playing field of DC governance compliance; however it would of course create an additional administrative burden for trustees.

Automatic enrolment: Five step checklist for trustees
In this checklist, TPR acknowledges that while automatic enrolment may primarily be an employer issue, trustees must also provide assistance. After its initial publication in June 2011, TPR provided an updated version in December 2012 to incorporate its subsequent guidance.

While brief, this document is helpful for trustees in setting out the first basic steps that need to be taken before the scheme’s staging date. Trustees are expected to verify that the scheme can be used; review the scheme against the six principles above; review the default investment strategy; examine the administration processes and communicate with members on the changes coming into effect and how they are affected by them.

With TPR acknowledging that automatic enrolment is likely to secure DC schemes as the primary pension savings vehicle for employees, trustees are expected to undertake a pivotal role from the outset. TPR expects all DC schemes to comply with both legislative requirements and its principles through maintaining good governance. With staging dates approaching, trustees should perhaps also consider adding ‘preparing for automatic enrolment’ to their own list of resolutions.

Written by Matthew Swynnerton, partner, employment, pensions and benefits at DLA Piper

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