The Pensions Regulator

Q&As: DC schemes

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Administration

Why is the regulator interested in promoting good administration?
How do we make sure that our scheme is well-administered?
What action does the Pensions Regulator take on the late payment of contributions by employers?
What is the employer's role in ensuring good administration?
What are the main aspects of administration where the regulator wants to see some overall improvement?

Why is the regulator interested in promoting good administration?

• The regulator has been given a statutory objective to promote, and improve understanding of, good administration.
• Poor administration can mean members do not receive correct and timely benefits and also can cause delays if the scheme comes to be wound-up. Members themselves may not realise that mistakes have occurred.
• Our corporate plan for 2008 - 2011 includes an objective that “scheme administration is improved as a result of the regulator's actions”.

  The performance indicator for this objective is that “standards for effective record-keeping have been identified, consulted upon and implemented where appropriate, and results of the annual governance survey show sustained performance in the following areas:

  • risk management
  • internal controls
  • administration service standards”
• In relation to the administration of GPPs, we liaise closely with the FSA who also has regulatory responsibility for the administration of GPPs.

How do we make sure that our scheme is well-administered?

• We expect trustees to work with their administrators to verify the quality of record-keeping and to put in place an action plan to correct any data problems that are identified.

  Occupational schemes

• Key to good administration is an open and honest relationship between the trustees and administrator, so that any issues are quickly identified which means that swift action can be taken to address them.
• In relation to administration for schemes with AVCs, it's important to consider the administration of the AVC benefits as well as the main scheme benefits.
• Administration is covered in the Trustee toolkit and the regulator's code of practice on internal controls

  GPPs

• In relation to the administration of GPPs, we liaise closely with the FSA who also has regulatory responsibility for the administration and systems and controls of GPP providers.
• Our guidance on voluntary employer engagement includes monitoring administration.
• There is no 'off-the-shelf' answer to how trustees and employers can ensure their scheme is well-administered as it will depend on how the scheme has been set up and what the trustees and employer want to achieve.

  Therefore those running schemes need to take an intelligent scheme-specific approach. Our governance survey indicates a high correlation between the level of training that trustees have received and the standards of scheme governance.

What action does the Pensions Regulator take on the late payment of contributions by employers?

• The prompt and accurate payment of contributions by the employer is vital under both occupational DC schemes and GPPs as the timing and amount of contributions determine the investments purchased for members.
• The primary responsibility to recover unpaid contributions falls to trustees (occupational schemes) and providers (GPPs).
• Under the regulator's codes of practice for reporting late payment of contributions, any late payment which is likely to be of material significance to the regulator should be reported to us by the trustee/manager.
• The regulator will take action to recover contributions in some cases of late payment in accordance with its risk-based approach. Due to the large number of DC schemes, the regulator has to prioritise the reports it receives, focusing on those where the impact to the members is greatest.
• Member complaints regarding late payments by employers can also be referred to the Pensions Advisory Service.

What is the employer's role in ensuring good administration?

• The successful administration of occupational DC schemes normally involves the employer at all stages of the member life cycle; joining, during active membership, leaving service and retirement.

  Under GPPs, where the member leaves service prior to retirement, the employer may no longer have a role in administration.

• The employer needs to provide accurate and timely employee data to the scheme administrator.
• Periodic reconciliation of employee data with member data is likely to be essential to ensure the ongoing accuracy of member records.
• The employer benefits from active engagement in scheme administration as poor administration can be costly to put right.
• Our guidance on voluntary employer engagement includes the administration of GPPs.

What are the main aspects of administration where the regulator wants to see some overall improvement?

• As outlined in its business plan, the regulator has identified two priority areas for administration - effective record-keeping and reducing the time taken to wind up schemes – as there are issues across the industry.

  It's important, however, that each scheme and provider looks at their own scheme to identify the specific areas where they need to consider improvements.

• On trust-based schemes, the trustees retain responsibility for administration even though the actual work is generally delegated.
• We see record-keeping as a key part of good administration and we plan to consult on our approach to the quality of record-keeping by all pension schemes including DC schemes.
• We expect to see the wind-up of occupational schemes completed in two years, and have issued a consultation document setting out our expectations. We've also issued an e-learning module on winding up in the Trustee toolkit.
• The Trustee toolkit covers key aspects of administration.

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