The Pensions Regulator (TPR) has published a discussion paper on defined contribution (DC) pensions, seeking to establish how it should go about supporting the DC market as more and more savers enter the schemes.

As automatic enrolment is phased-in from October 2012 the number of people saving in DC schemes is likely to increase dramatically, and TPR is seeking views on how it may be possible to further raise standards in DC provision, thereby contributing to greater confidence in pension saving.

The paper, Good Member Outcomes in Work-based Pension Provision, identifies six key elements which the regulator believes are important for achieving good outcomes for savers. The elements are:

• appropriate decisions with regards to pension contributions;
• appropriate investment decisions;
• efficient and effective administration of DC schemes;
• protection of scheme assets;
• value for money; and
• appropriate decisions on converting private pension savings into a retirement income.

TPR is seeking to start a discussion around a number of areas, including administration, master trusts, product characteristics, costs and fair value, asset protection, and scheme selection.

Decision making around converting private pension savings into retirement income and accountability for decision-making in members’ interests are also topics for discussion.

Minister for Pensions Steve Webb welcomed the additional attention TPR is bringing to the regulation of DC schemes.

“As we increasingly move to a world where more and more people are saving into these schemes, and approach automatic enrolment in 2012, we need to make sure the regulatory landscape is strong and fit for the 21st Century,” Webb said.

TPR chief executive Bill Galvin said the paper marks the start of a dialogue with the industry and stakeholders over what good DC pensions look like, and how the regulator can support the market in delivering good outcomes for members.

“The pension landscape has shifted since we published our approach to DC regulation in 2007, and the introduction of automatic enrolment will result in a dramatic rise in the numbers of people saving in DC schemes. It is important now that we ensure our regulatory approach supports the Government’s workplace pension reforms and is designed to deal with current and future challenges as the market develops,” Galvin said.

The National Association of Pension Funds (NAPF) welcomed the paper, with director of policy Darren Philp saying that as DC schemes become increasingly common, raising standards is important.

“The regulator’s paper sets out some important areas for potential improvement, including record-keeping, scheme size and investment choices.

“It is welcome that it is taking a strategic approach to these issues and is starting a debate about how to improve member outcomes. However, it needs to proceed with caution and not rush to introduce new regulations. The NAPF is fully engaged in this important debate,” Philp said.

PwC also welcomed the paper as its recent research found that reducing the running costs of defined contribution pension schemes by as little as 0.5 % could improve employee retirement income by as much as 10% for life.

Peter McDonald, pensions partner at PwC, commented: "Employers need advice on how to manage these schemes as effectively and efficiently as possible to maximise value for employees who face reduced pension incomes than previous generations.

"Our research highlights the difference simple steps such as reducing costs, maximising how much you pay in when you can, and choosing the best annuity at retirement could make to an individuals' retirement income. It is also vital employers ensure employees are aware of the options open to them so they can make informed decisions about future savings. For instance, it could be in the interest of lower earners to opt out of the company pension plan and save for retirement through other means."

Comments on the paper (available here) are invited through to 22 April. Following the initial consultation period, the regulator intends to consult on any further specific proposals during 2011, culminating in publication of an updated approach to DC regulation.

Share Story: