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Regulator sets out approach to DC regulation and highlights importance of good governance

Ref: PN07-05
Wednesday 25 April 2007

Industry-wide views on the regulation of defined contribution (DC) schemes have today (Wednesday) been published by the Pensions Regulator following its recent consultation, alongside a discussion paper on pension scheme governance.

Identifying key issues for DC schemes - including administration, investment choices, charges, decisions on retirement choices and member awareness - the consultation document sets out proposals on how DC schemes will be regulated. The consultation responses will inform guidance, setting out how the Pensions Regulator will regulate DC schemes, which will be published in due course.

The regulator has also published a discussion paper on pension scheme governance and invites comment from the pensions community. The paper highlights the pivotal role of education and the importance of good governance in running all schemes. Key themes relating to defined benefit schemes are managing conflict, the employer covenant and relations with advisers. Issues around administration, investment choices and winding-up relate to all schemes and these issues will also be highlighted in the DC guidance.

Chief executive, Tony Hobman, said: “Our approach to both DC regulation and governance will be to educate, enable, and then enforce – supporting schemes is our priority, alongside partnership working. Intervention will be only as a last resort.”

To view the DC consultation response paper or the governance discussion paper visit www.thepensionsregulator.gov.uk

Editor's notes

  1. Addressing the risks to DC schemes, and encouraging good governance are two of the Pensions Regulator’s three principal themes for this year (alongside scheme funding) as set out in its Medium term strategy.
  2. The consultation document on DC risk did not propose new regulation – rather set out how the regulator proposes to regulate DC schemes, one of its statutory objectives. This applies to all work-based DC schemes, both trust-based and contract-based.
  3. The regulator’s focus in regulating DC schemes and encouraging good governance is on education and support. Intervention is a last resort.
  4. More than 40 responses were received to the DC consultation.
  5. Good governance is at the heart of a well run pension scheme. The regulator has already done much work on encouraging good governance, including the development of free online learning and the introduction of codes of practice and guidance.
  6. There are many common issues spanning both documents, for example, risks to members in DC schemes - specifically administration and investment, making it sensible that we publish both at the same time.
  7. The Financial Services Authority has worked with the Pensions Regulator in the development of the DC risks and governance proposals where both organisations have an interest, in particular the governance of contract-based pension schemes. The FSA welcomes the discussion paper and looks forward to continue working with the Pensions Regulator, the industry and other stakeholders to develop mitigation strategies that are proportionate to the risks and reflect the relevant regulatory frameworks. (For further information please contact the FSA press office on 020 7066 3232.)
  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. The Pensions Regulator’s powers include the ability to:
    • collect detailed scheme information;
    • issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;
    • freeze a scheme that is at risk while the regulator investigates;
    • disqualify trustees who are judged not fit and proper to carry out their duties; and
    • issue a contribution notice or financial support direction
    The Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator.

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