The governance of contract-based schemes

Following the well documented decline of final salary schemes in the UK and the move towards DC replacement schemes, it should come as no surprise that The Pensions Regulator (TPR) has turned its attention to contract-based DC schemes in recent years.

And so, after consultation, TPR has recently published guidance which talks about the governance of contract-based DC schemes, such as group personal pensions (GPPs), group SIPPs (GSIPPs) and group stakeholder pensions (GSHPs).

The guidance, ‘Voluntary employer engagement in work place contract-based pension schemes’ is primarily designed to promote good administration and improve member protection in the contract-based DC world.

As its name suggests, the guidance is purely voluntary so employers can choose to ignore it if they wish. So the first question that employers may ask is ‘Why bother?’.

The Regulator addresses this very question and has come up with some reasonable suggestions as to why employers should consider getting more engaged in the governance of their contract-based DC pension schemes. In short, TPR suggests that employers who do follow their guidance will see
benefits in the form of their employees’ positive perception of both them and the scheme.

Whether employers choose to get engaged, and their level of engagement will depend on many factors. It may, for example, depend on the size of the employer and whether they had any trust-based schemes in the past. A large employer with a new GPP set up as a replacement for a DC trust-based scheme may well be familiar with setting up a structure to engage in the way TPR wants. On the other hand, a new, small employer with say, just 6 or 7 employees may not see the value of spending time and effort in getting too involved.

Assuming that there will be employers who will want to engage in their contract-based scheme, exactly how they do so will be entirely up to them. TPR breaks down the activities into three areas – Member concerns, HREmployer issues and Monitoring services.

‘Member concerns’ is pretty much what it says on the tin and focuses on increasing member understanding and engagement through improved member communication and providing additional support, for example work-place presentations to employees.

‘HR-Employer issues’ is more about the bigger picture. For example, examining why the scheme is provided in the first place and setting contribution rates.

And finally, the monitoring of the scheme deals with the selection and monitoring of the provider. For example, is the charging transparent, sustainable and does it represent good value for money – something of course that the RDR is also partly concerned with.

TPR recognises that key to all of this is the employer’s adviser as it’s them who are normally engaged in these activities anyway. By encouraging employers to get more engaged in their contract-based schemes, advisers can raise their own profile with the employer.

This can help the relationship between adviser and employer which of course can lead to an increase in business and ultimately members’ benefits. And advisers don’t have to go it alone. Some providers already produce a wide range of employee communication material, targeted for example, at increasing take-up rates. And nowadays online governance and service level reports are available at the click of a mouse. Add to that the facility for the adviser to brand these documents as their own, it’s easy to see how this can all lead to stronger, longer lasting business relationships.

Employer engagement in contract-based schemes, in partnership with an adviser, is perhaps particularly relevant now. Getting the messages across, that the employer values their employees and the scheme they’re provided with, can be powerful in the face of the inevitable publicity that will surround the proposed launch of Personal Accounts in 2012.

Jamie Clark,
Occupational Pensions
Marketing Manager