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Regulatory guidance

Employer engagement

Different forms of employer engagement

We recognise that your commitment to pay contributions to your GPP represents a key form of employer engagement. 

You can choose who to involve in the governance of your GPP. If you are a smaller employer with fewer staff you may have fewer options, for example, many do not have separate HR or finance functions, but many still have one or more staff involved in the review of their scheme.

Some employers share resources and form a combined group to monitor the arrangements where they have a common provider.

In addition to its legal role and responsibilities as a party to the contract, the provider may produce a quality assurance report designed to give comfort to the employer around a range of criteria (eg, service standards, allocation of contributions, complaints, charges).

Providers may also provide reports on scheme data, such as numbers of joiners, members, leavers, retirements, deaths, contributions and fund choices. There may be a service level agreement in place between the provider and the employer, for example in relation to the process for administering payments, to ensure that contributions are paid in a timely and accurate manner.  

We do not favour one type of governance arrangement over another. You may wish to consider one or more of the following for a role in the governance of your GPP:

Adviser

Your independent financial adviser (IFA) or employee benefit consultant may monitor the operation of the scheme and whether it continues to be appropriate for your circumstances, depending on their terms of engagement by you.

You may pay a fee to the adviser, either a flat rate fee for a periodic review, and/or an hourly rate. The adviser may be remunerated by commission which may be initial commissions paid when new members join, and/or renewal or trail commission based on the ongoing level of contributions or fund value.

In many cases the adviser will want to keep you as a client and by being involved in reviewing the scheme can demonstrate their ongoing value. The adviser’s professional knowledge of pensions and their potential commercial influence over the provider (as a provider of potential new business) can make them a valuable contributor to the governance process. To the extent that the adviser is involved in selecting the provider and setting up and running the scheme, their own performance needs to be kept under review.

Employer representatives

Employer representatives may informally review the running of the scheme. In particular, your HR department may monitor the scheme along with other employee benefits, to ensure they are meeting the desired corporate objectives for the scheme, for example.

As the selector of the pensions provider, you have an interest in keeping this service, as with other services, under ongoing review to ensure that it is still meeting the need it was designed to fill. 

Employees

Members may be involved in the governance arrangement to represent the interests of fellow members.

Many employers value the involvement of employees as it provides useful feedback as to what employees want from the pension scheme so it can be tailored to meet their needs. It also can highlight aspects of the scheme which are not working effectively, for example, members may advise that there are delays in actioning requests for information about the scheme.

Employee involvement may take different forms.  It may be informal:

  • through a staff forum which gives staff a chance to ask questions regarding the scheme. These may be related to any of the parties involved in running the scheme – adviser, employer, provider, members. The scope of this forum may be limited to the pension scheme or it may cover a range of employee issues; or
  • through a union which provides a mechanism for bringing forward questions, issues for discussion and ideas and provides a member voice, as well as representing problems or concerns. With government backing, the Trades Union Congress (TUC) has launched a scheme of 'Pension Champions'. These are employees, who may or may not be union members, who are volunteers trained to deliver pensions information and (non-regulated) advice to their colleagues in workplaces. These individuals may be able to provide valuable information to employers regarding how the GPP is working as far as members are concerned, and to help employers who want to improve levels of member understanding. 

Or employer involvement may be through a more formal management committee.  

Management committees

These are an increasingly popular type of governance arrangement, although there is as yet no dominant or established model for management committees.

A management committee generally has no legal definition and is a term used to cover a diverse and often not clearly defined group of arrangements set up by employers. Appendix A has more information on management committees.

Trustees of existing occupational pension scheme

Where there is also an occupational pension scheme offered by an employer (which may be open or closed) the individuals who act as trustees may be asked to keep the GPP under review as they already have pensions knowledge and can provide a focal point for all pensions-related issues.

Such trustees need to continue to be mindful of their fiduciary obligations to members and beneficiaries of the occupational scheme and aware of any potential conflicts.

Here are two case examples of ways that different employers have chosen to review their GPPs.

Review by employer and adviser

A UK manufacturing company closed its occupational DB scheme in 2003 and opened a stakeholder plan for new joiners after that date.

As the company employs relatively few people in the UK with low staff turnover, the stakeholder plan has only 17 members. The company feels that it has a duty of care to monitor the plan effectively, but on a scale that is proportionate to the size of the plan.

The company has therefore decided that the finance director, managing director and HR manager will meet once a year formally to review the performance of the plan. To assist with this, the company’s pension adviser produces a brief report covering:

  • an analysis of the provider’s investment, administration and communication services as well as its financial standing and commitment to the group pension market; a summary profile of the scheme showing where the money is being invested; and
  • a review of the performance of the key funds. Most of the members invest in the plan’s default lifestyle strategy and so particular attention is paid to the funds that make up this strategy.
    The purpose behind the performance review is to be satisfied that the company and its employees are getting value for money from the plan and are using it effectively.

The company intends to keep the level of governance under review and may expand its monitoring remit as the membership and assets grow.

(This example previously appeared in our governance discussion paper in April 2007.)


Management committee

An engineering company in the south of England with 3-400 members moved from occupational DB to contract-based DC in 2004 and still wanted to give employees a 'watching brief' in the running of their pension scheme. To do so, they set up a committee to meet half yearly to review their new GPP and report back to the company.

The committee has three members appointed by the company and two appointed by employees.

It has interviewed the provider on administration and investment matters and has reviewed its default investment choice and speed of contribution payment by the employer.

It reports back to the employer on any matters of concern.

Our case example 6 in Appendix B tells you more about the terms of reference.