enabling good outcomes for members of dc schemes andrew warwick-thompson executive director, dc...

Enabling good outcomes for members of DC schemes

Andrew Warwick-Thompson

Executive Director,

DC Governance and Administration

Corporate Adviser Summit

October 2013

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Current landscape

DB Hybrid DC occupational

DC work-based personal pensions

DC memberships

Public Sector

Schemes 5,590 1,620 39,000 1,780 Total 330

Total memberships

8.0m 3.6m DB

1m DC

1.4m 2.6m 5m 12.7m

Active memberships

1.4m 0.4m DB

0.5m DC

0.6m 2.6m 3.7m 5.1m

• The long-term shift in the landscape places greater prominence on DC

• There are 36,000 occupational micro DC schemes

• Active membership is expected to increase significantly as automatic enrolment is introduced

The DC landscape


*central estimate

Source: The Pensions Regulator projections

Anticipated growth of the major DC segments

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

All Master trust Other trust Contract-based

Total active membership in DC schemes through staging


The DC journey

• January 2011 - published discussion paper ‘Enabling good member outcomes in work-based pension provision’

reviewed DC regulatory strategy to tackle current and future challenges in the DC landscape, particularly impact of automatic enrolment from 2012

identified six elements necessary to achieve good member outcome of adequate income in retirement

• appropriate contribution decisions

• appropriate investment decisions

• efficient and effective administration

• value for money

• appropriate retirement decisions

• protection of assets

segmented the market based on scheme type / employer engagement

assessed risk to achievement of good member outcomes for each segment


The DC journey continued

• Responses to the discussion paper

Strong consensus that the six elements of a good member outcome were right

Suggested that we refine the segmentation approach

• We challenged industry to define how they might:

Embrace voluntary accreditation of auto-enrolment schemes

Better enable trustees and employers to compare value for money from schemes

Better clarify accountabilities in DC provision

• November 2011 – published six DC principles

Standards and characteristics of a good DC scheme

• June 2012 – published draft DC features

Features that underpin the six DC Principles

– January 2013 – DC consultation

DC code, regulatory guidance, regulatory approach


TPR/DWP joint publications revised timetable – Proposal

Lay DC Code

Consultation response published

Defined Ambition &

Quality Standards

Quality Standards

Call for Evidence

C&E Policy published

DC Toolkit modules

DC Regulatory Strategy published DC Regulatory

Guidance

July August September October November

Compliance & enforcement

policy targeted consultationEmployer and Adviser

guides & Management Committee Guidance

DC Code Summary

DC Code “made”


To protect the benefits of members of work based pensions

To protect the benefits of members of work based pensions

Our regulatory approach

• We are committed to increasing confidence and participation in work-based pensions

EDUCATEEDUCATE ENABLEENABLE ENFORCEENFORCE

To promote, and improve the understanding of, the good administration of work-based schemes

To promote, and improve the understanding of, the good administration of work-based schemes

Codes of practice

Codes of practiceWeb toolsWeb tools

Trustee toolkit

Trustee toolkitGuidanceGuidance Thematic

reviews

Thematic reviews

Use of powers

Use of powers

Regulatory statements

Regulatory statements

Risk toleranceEnable good

member outcomes

Enable good

member outcomes

Prevent serious

loss

Prevent serious

loss


Our DC priorities


Topics for discussion

• Good member outcomes

• Pension liberation fraud

• Small schemes

• Retirement choices

• Value for money

• Anything else?


Good member outcomes

Value for money

Effective and efficient

administration

Appropriate investment decisions

Appropriate contribution decisions

Adequate retirement

income

Protection of assets

Appropriate decumulation

decisions


Pension liberation fraud


Base: All DC schemes (152); *All DC schemes that document their internal controls (110)

Small schemes

% yes Small DC Medium DC

Large DC

Board meets at least every 6 months

34% 68% 94%

Documented internal controls 54% 72% 90%

Risk register in place* 56% 64% 96%

Documented service standards (admin)

52% 78% 90%

Formal documented policy on TKU 24% 32% 60%

Reviewed SIP in last 3 years 48% 62% 85%


Retirement choices

Current initiatives to drive better member outcomes

• ABI code of conduct on retirement choices/annuity window

• DWP/HMT OMO review group

• FCA thematic review of annuity market

• Money Advice Service guide

• TPR revised retirement guidance

Longer term

• Re-thinking decumulation

• Effective de-risking

• Emergence of Managed DC

• Innovative product development when scale is reached


Value for money

A scheme offers value for money where member-borne costs and charges deliver good value in relation to the benefits provided to members, relative to other options available in the market

The regulator’s role:

Working with the market, to deliver an approach that allows employers and trustees to undertake meaningful value for money assessments on an ongoing basis.

The regulator does not seek to specify what represents value, but will seek to intervene where employers and trustees are frustrated in their ability to assess it.


Value for money continued

• Progress is required so that:

– All costs and charges (product and scheme) are captured and consistently reported

– Costs and charges are attributable to specific benefits

– Investment returns are captured and their benefits relatable to costs

– Comparison via benchmarking is facilitated

• However: absent effective demand-side pressure – even this may not be enough, hence the DWP’s consultation on a charge cap for qualifying schemes.

Do similar schemes with similar charges

deliver similar benefits?

Value for money: a potential process

TPR Publish Segmented Data

Trustees/employer; negotiate/change

provider/do nothing

What are my members getting?

What are my members paying?

Do similar charges deliver similar

outcomes?

This presentation remains the property of The Pensions Regulator. The contents of these slides should not be reproduced without express permission.

Enabling good outcomes for members of DC schemes

Andrew Warwick-Thompson

Executive Director,

DC Governance and Administration

Corporate Adviser Summit

October 2013

enabling good outcomes for members of dc schemes andrew warwick-thompson executive director, dc...

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