The Pensions Regulator

Voluntary employer engagement

Article published: DC World, March 2008

As an increasing number of DC schemes are being offered on a contract basis rather than a trust basis, the Pensions Regulator has published new guidance to encourage voluntary engagement by employers who offer such schemes. Alistair Elliott, a technical specialist in the regulator’s DC, Governance and Europe team, explains.

In recent years the number of employers of all sizes who offer workplace contract-based schemes to their employees has increased markedly.

There are three main types of workplace contract-based schemes:

• group personal pensions (GPPs)
• group self-invested personal pensions (group SIPPs);
• group stakeholder pensions;

All three involve an individual contract between the provider and the member – the employer does not usually have any direct contractual relationship with the provider.

The Pensions Regulator ‘s responsibility for workplace pension schemes includes contract-based schemes. Such schemes are also regulated by the Financial Services Authority. Our joint publication, ‘A guide on the regulation of work place contract-based pensions’, explains the main regulatory focus of each regulator and gives an overview of the employer’s legal obligations. 

Guidance now available

We published our guidance on voluntary employer engagement in GPPs at the end of January 2008 (in the guidance and in this article we refer to all three main types of work place contract-based schemes as GPPs). The guidance is intended to provide support employers of all sizes who offer such schemes to their employees, by:

• identifying forms of employer engagement;
• considering employer engagement options, for instance, advisers, employer representatives, employees, management committees and trustees;
• describing the types of activity an employer may like to consider for review.

Providers of GPPs and advisers may also find the guidance helpful. Additionally, we have published case studies to provide employers with practical examples of effective engagement. 

Benefits of employer engagement with GPPs

Since there is no legislative requirement for any governance arrangements over and above employers ensuring they meet their legal obligations, the guidance is not concerned with how to comply with legislation, nor does it propose any new requirements on employers over and above those that already exist.
As we developed the guidance, we consulted with the FSA and both organisations share the view that voluntary governance arrangements are a matter for employers.

The Pensions Regulator believes, however, that it is in members’ best interests that employers offering GPPs proactively engage in their schemes and put in place arrangements for those schemes to be periodically reviewed.

Recently, we commissioned independent research which found that approximately half of all employers already have some form of governance arrangement in place for their GPP. The benefits of such arrangements can include:

• better quality of arrangement;
• saving time and money resolving errors;
• improved take-up and appreciation of the scheme;
• employee involvement; and
•  risk mitigation.

Different forms of employer engagement

We encourage employers to choose whatever type of governance arrangement works well for their situation – we do not favour one type of governance arrangement over another. Examples of possible arrangements include:

Employer representatives informally reviewing the running of the scheme. In particular, the HR department may monitor the scheme along with other employee benefits, for example to ensure it meets its corporate objectives.

Employees being involved in the governance arrangement to represent the interests of fellow members. Such involvement may take different forms, either informally through:

• a staff forum which gives staff a chance to ask questions regarding the scheme;
• 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, or
• more formally through a management committee.  

Management committees - an increasingly popular type of governance arrangement, the term covers a diverse and often not clearly defined range of arrangements set up by employers. There is, as yet, no dominant or established model, but they are generally a group including employer representatives who are asked by the employer to review various aspects of the GPP. 

Trustees - if the employer already offers an occupational pension scheme, the employer may ask the individuals who act as trustees to additionally keep the GPP under review, as they already have pensions knowledge and can provide a focal point for all pensions-related issues.

IFAs can also play a role in monitoring any arrangements, and providers may supply management information.

Different forms of engagement activities
Again, we encourage employers to choose what activities are most suitable for their situation. We find, however, that the activities tend to fall into three categories:

• addressing member concerns eg improving member communications; enhancing member understanding; providing a clear communication channel for members to raise any concerns they have about the GPP; providing additional support to members eg facilitating 1-2-1 advice;
• reviewing HR-employer issues eg keeping objectives of scheme under review, eg adequacy of benefits; take-up rates; administration of payroll deductions; and
• monitoring services, eg selection and monitoring of provider; keeping scheme costs and value for money under review; funds selected by members (eg if all members are in cash fund this may be an issue to raise with the adviser and provider).

The guidance, case studies and the research can all be found on our website: www.thepensionsregulator.gov.uk/employers.

Published: DC World, March 2008