The Pensions Regulator

Regulator releases DC Trustee toolkit module and DC Risks consultation

Ref: PN06-37
13 November 2006

• New initiatives unveiled to address the risks of Defined Contribution schemes
• Latest e-learning module launched specifically on DC schemes
• Consultation announcement on how the regulator will regulate DC schemes in relation to risks to members

New initiatives demonstrating the Pensions Regulator’s commitment to addressing risks to members of defined contribution pension schemes were unveiled today (Monday).

A module dedicated to defined contribution (DC) schemes was launched as part of the already established free online e-learning programme www.trusteetoolkit.com.

At the same time, a consultation was announced to consider the Pensions Regulator’s proposals to address the risks to members and how it will regulate DC schemes. A working group is being set up to provide external input to this process.

Chief executive Tony Hobman said: “This consultation document puts flesh on the commitment in our Medium Term Strategy to tackle the specific risks to DC schemes. We very much welcome input from all parties with an interest in work-based DC schemes to enable us to give the right focus to these schemes.

“The latest Trustee toolkit module aimed specifically at trustees of DC schemes, but which may also be of interest to others, has also been launched to provide trustees with the opportunity to improve their understanding of the risks associated with properly managing a DC scheme.”

The consultation document

The regulator will take a three pronged approach – education and guidance, partnership working, and intervention.

Our focus will be on prevention and we will provide information and practical guidance to help those running and providing DC pension schemes understand and address the risks to members. We will also continue to build on our partnership with other parts of government and industry so there are workable solutions in place.

However, where there are serious risks to members the regulator will intervene where necessary. The regulator invites comment on this document by 2 February 2007. A working group of individuals with practical experience of DC schemes is also to be established to consider in detail the proposals and identify other issues and solutions where appropriate.

The Trustee toolkit module on DC schemes

The ‘How a DC scheme Works’ module contains information on: the nature of DC schemes; contributions; the tax regime; investment choices; decisions at retirement; charges; administration; and improving member understanding.

Editor's notes

1. Our statutory remit recognises that the identification and mitigation of risk is important in any form of work-based pension provision. Although much recent public, industry and indeed regulatory focus has inevitably centred on DB funding issues, our Medium Term Strategy commits us to ensuring that risks to members of DC schemes are also highlighted and addressed in a pro-active and proportionate way.
2. The regulator requests comment from the industry and other interested parties on the DC Risks consultation document. The relevant contact details can be found within the document on the regulator’s website.
3. The consultation document on DC risk does not propose new legislation and was produced to set out the regulator’s views on how it proposes to respond to the risks faced by members of DC schemes. The consultation covers work-based schemes, both trust-based and contract-based. It is addressed to all those involved with DC schemes and in particular: Trustees, providers, employers, advisers, administrators, payroll providers and members.
4. The five common areas of risk outlined are:
5. • poor administration;
   • poor investment choices;
   • unduly high charges;
   • poor decisions on retirement choices; and
   • lack of member understanding.
6. The regulator’s proposed response to these risks is a combination of education and guidance; partnership working and risk-based interventions.
7. The Trustee toolkit was designed to help trustees meet the requirements of the Pensions Act 2004 (sections 247-249. The code of practice on trustee knowledge and understanding is now in effect. This helps trustees to comply with the requirements and can be found, along with additional guidance for trustees, on the regulator's website at www.thepensionsregulator.gov.uk/trustees
8. The Pensions Regulator is the regulator of work-based pensions in the UK, with wide-ranging and flexible powers under the Pensions Act 2004.