Providing support for schemes and employers now and as we look out towards 2012 and beyond

Graham Brammer, executive director for employer compliance regime, speaking at the Pensions Age conference, April 2010 

Good morning… it’s a great pleasure to join you today.

I’m very conscious of the breadth of the topic I have been asked to talk to you about today, and that in PADA’s absence you may feel you want to quiz me on the various merits or otherwise of pensions reform, and of NEST and of charges and contributions - but for very many reasons that is not why I am here.

I have a very specific role to play in preparing for workplace pensions reform - getting the industry ready to comply with the new duties - and it’s my work in that area that I want to share with you today.

But more than that I’ll also take a bigger picture view, sharing with you what else is happening within the regulator – to make sure that standards in pension provision are improving now, security and value for all members of work-based pension schemes are increasing, and that the industry is ready to deal with the millions of new members we will soon be welcoming into the fold.

Well for over two years now we have been working behind the scenes to design and start building an employer compliance regime – with the aim of making it as easy as possible for employers to comply with their new duties.

And in due course we will make it very clear exactly what we expect employers to do and when.

And later this year we will publish our draft proposed enforcement strategy for dealing with non-compliance with the new employer duties.

- I have no doubt that suggestions will be forthcoming -

But in terms of exactly how employers – and schemes – will interact with us in the auto-enrolment world, is still being finalised.

So for today, I’m going to focus on what we expect from employers and their advisers now.

Our expectations are fairly straightforward - we want employers to think about when they will be called upon to carry out their new duties and once they know - to start thinking about what their pension provision will need to look like to satisfy the auto-enrolment requirements - whether that means changes to existing provision or organising provision, for the first time.

For trustees it’s the same. Look at your scheme and consider if it will meet the requirements or whether you might need to make changes. And if so what changes.

And for advisers, it means getting to grips with the requirements now so you can help your clients to get ready to carry out their duties.

And we are here to help you to understand, and to get thinking in the right way.

To make this happen we need to start communicating with a much bigger and much more diverse audience than we have ever done before: all employers who have employees working in the UK – more than a million of you. On top of the tens of thousands of trustees and the hundreds of thousands of professional pensions advisers with whom we already interact.

We are very aware what a challenge this will be, but it’s a challenge we know we can meet.

Right now, employers generally come into contact with us through their scheme, often through the employer nominated trustees. However many employers have no direct contact with us at all, once the scheme is set up.

So it’s fair to say that employers have not been our traditional primary audience.

Many employers will never even have heard of us and won’t know what we do or why they might come to us…

So this means not only do we need to get the communications messages right, but we have to interest the audience too.


Which brings me onto a couple of things going on right now – both of which are important for us in increasing and improving our communication with employers, their advisers, and of course trustees.

You may have noticed that our website has been refreshed… and although I hope it’s easier on the eye, there’s a much more serious reason for the update - to make it easier for you to use and to navigate around and to better reflect our new role and the bigger and broader audience we need to communicate with.

And by this I mean we have re-thought the way we deliver our information to all our audiences.

Because we know different groups need different kinds of information and need that information in different amounts of detail we’ve sorted through all the information and pulled it together in one place for each audience.

So, as a trustee you can go straight to a page that shows you the information that covers your role and your responsibilities.

And the same is true for advisers and employers.

We’ve even broken it down into ‘the essentials’, and the ‘in depth’ information.

The basic info complements the trustee toolkit, which of course still remains the best possible way the get to grips with all the basics of pensions and pensions regulation.

Hopefully this will make it much easier for all of our audiences to find the information they really need - and it will also help us to target the information towards those who need it.

Which nicely brings me back briefly to our work on educating employers.

Of the estimated million plus employers who will eventually need to register with us, less than half currently provide a scheme.

We can reach many of those employers through channels like our website, direct communications, or through trustees or advisers.

But that means there are still over five hundred thousand employers who currently don’t offer any pension provision and who are unlikely to know us or have any contact with us… but who we will still need to reach.

To reach these employers we need to look at different channels, like employer representative bodies. This starts with the publication of our employer leaflet – which we will publish shortly,

- it gives an introduction to the changes and what the new employer role will be.

- it gives simple definitions and answers for questions like who is an ‘eligible jobholder’?… what will a qualifying scheme look like?… when the changes will take place?

- and of course it also gives suggestions of where else to look for information and support, including the FSA and TPAS.

It’s available through our website, and we will also hope to work with employer representative bodies… like EEF, BCC, FSB, REC, CBI etc… to make it available to a much wider audience.

You can expect to see us working more and more with other organisations to help us reach the employer audience as tim goes on.

But let’s just take a step back and look at the bigger picture.


This next slide gives an overall picture of the current pensions landscape.

The numbers that shout out to me are in the dc area - where there are already 1.5 million members in DC trust-based schemes, and another 3.2million in DC contract-based arrangements negotiated by their employer.

While of course some employers will auto-enrol their employees in db, we know that the number of db schemes and memberships - whether we like it or not - is declining, and we expect many if not most employers to choose DC as the provision of choice. So with an estimated 9 million more members represented on this slide once auto-enrolment is fully implemented… it’s pretty clear to me that we’re likely to see it distinctly heavier on the right hand side in the future.

I do just very quickly have to say here that you should not take this as any kind of sign that the regulator is stepping away from DB.

Far from it.

In fact we are shortly starting our next DB campaign, but that’s a topic for another day.

But let’s move on, as I’ll come back to this landscape shift a little later.

While my personal focus is very much on preparing the industry and employers to cope with the millions of new members who will join pension schemes through auto-enrolment… right across the regulator, we are all working to make sure that the move from the world we know now to the post-reform world will be a smooth one.

An equally important part of our work is to make sure we are doing everything we can right now, to be fit and able to protect current scheme members.

So for the next few minutes I’m going to talk about some of the things we all need to be taking into consideration now. Things like basic administration and governance of schemes, which is absolutely vital now to protecting members’ benefits and maximising the value that members get from their scheme.

Administration and governance is a topic we have really pushed out into the limelight over the last few months…

It may not grab headlines in the financial times…. But we are certainly now getting the feeling that it interests those of us who work everyday within the world of pensions.

We held a series of governance and administration workshops recently, we were really surprised – and encouraged - by the enthusiasm people had to discuss administration and governance issues.

The reason behind our obsession with good governance is simple.

Our job is to protect scheme members’ benefits, and to that end we need to make sure that schemes are run well and that trustees - and their advisers – can carry out their roles to an appropriate standard.

The most basic of scheme functions, like knowing who to pay a pension to, how much, and when, are all dependant on good administration practices… and things like getting the best service from advisers, managing investments and communicating with members come down to having good internal controls – one of the most basic but fundamental aspects of scheme governance.

This obsession of ours is nothing new as I hope you know. We have been pushing for improved administration and governance for years.

But over the last 18 months or so, many of the risks facing schemes, like conflicts of interest, poor investment decisions, lack of trustee knowledge and understanding, and the effects of poor record-keeping have become much more visible and pressing.

And then of course there is auto-enrolment to consider and the overall effects of pensions reform on existing schemes.

But enough of the why…. What do we actually want you to do?

Well, trustees have a legal obligation to put internal controls in place to manage the risks facing members.

And this means identifying, documenting and mitigating risk… catchy I know.

One of the most effective ways to do this is by developing – and using – a risk register. This is ideal for working through the real and potential risks facing your scheme and identifying what to do with each…

I won’t go through it in detail but you can easily see that by working through the different areas of the scheme… financial, funding, operational, regulation, etc, you can identify the risks… rate them… assign an owner… agree on how quickly they need to be dealt with… and actually get moving to put mitigation in place.

This really isn’t my area of expertise so I won’t try to go any deeper now, but the guidance goes into a lot more detail about risk registers and gives some very useful explanations about exactly how to use them…

- so if you aren’t a hundred per cent confident about using a risk register… or think you could get more value from your current register, I would really encourage you to take a look at the guidance – and you can always give us a call if you can’t find what you’re looking for.

Moving on now to the second, but just as vital element of this section… especially from an auto-enrolment point of view… record-keeping.

As I mentioned earlier, basic administration, like keeping accurate member records is key to the most basic of scheme activities.

…if you don’t know how old someone is, how do you know when they are due to retire?

…if you don’t know when they joined to scheme… do you know how much they have paid into it?

It’s very straightforward, but incredibly there are still major issues with data collection and management.

Our last governance survey found that only 19 per cent of schemes had checked that they have all the fundamental common data… that really basic information like date of birth, address, date of joining scheme, whether they are an active member or not.

And of those schemes, over 50 per cent were missing more than one item.

This poses a major risk to members now, but it also raises serious alarm bells for schemes facing a growth in member numbers post auto-enrolment.

It just not good enough to continue to enrol members into schemes where data issues already exist and where there are no plans in place to rectify the issue.

We feel so strongly about it that in our new guidance we are proposing to set accuracy targets for data… to make sure that data is brought up to scratch.

The proposal is that all new data collected from 2010 onwards will have to be 100 per cent accurate…which, though obviously strict, we think is achievable and necessary.

And for all legacy data, in other words data which is already on file, we want schemes to get the accuracy up to at least 95 per cent, by 2012.

Right now we really want all trustees to take a long hard look at how they collect, store and manage data.

Of course data may be handled by an administrator, but the fact remains - at the end of the day - that trustees are accountable and therefore need to be taking an active role in making sure that whoever is handling data is doing so to an appropriate standard and of course, to return to internal controls, that processes are in place to manage that risk.

Finally today Iwant to look in just a little more detail at the way we all view - and interact with - DC.

Even today, DC is often still looked on as a poor cousin - despite the fact that a well-funded dc scheme can actually provide similar benefits to a DB scheme.

DB gets the attention because it’s high-profile, it’s a major risk for the sponsoring employer and costs a lot of money.

DC on the other hand can cost relatively little – compared to DB, can require very little direct input from an employer, and places all of the risk on members.

But that is exactly why DC needs to be pushed up the agenda.

DC members bear significant personal risk, and face complex decisions about how they save for their retirement and how they turn those savings into an income.

And supporting them to make informed decisions about how they turn their savings into an income is one of the most important parts of a DC trustee’s role. One on which we’ve put a lot of focus on over the last year.

The accumulation period – while members are building up their pension – traditionally gets the lions’ share of what attention DC does command, because it deals with investment choices, contribution levels and so on… but making sure that members understand the effects of making a poor choice when they turn their savings into an income, can easily slip down the list.

We want trustees - and providers in contract-based schemes - to make sure members get the information they need to make decisions that are right for them – through all the stages of membership.

This involves giving them information and support that clearly sets out the options and the choices that need to be made – both while their pension is in the scheme, when they must decide where to invest and how much to contribute, but especially as they approach retirement.

Deciding to defer purchasing an annuity, choosing to take the open market option, or claiming a smokers’ rate for example can change a members’ income for the rest of a member’s life.

So we are focused on getting standards of communication and support up .looking amongst other things at the literature sent out to DC members as they approach retirement.

Again, like record-keeping, it might be that a third party, an insurer for example, is responsible for day-today communication with members about retirement choices. However it is the trustees again who remain accountable.

As a trustee you need to be sure you are happy with the material being sent out in your name - that it is sent out in time. That it presents enough options and presents them fairly.

If you aren’t happy with the annuity options offered by your scheme you may need to look around and see what others are available.

Offering the open market option, where members shop around for themselves, is important, but may not be enough. Most members will still opt for the simplest option, which is usually the default offer by the scheme.

In this case members might benefit from additional support, like access to a specialist annuity broker who can help them through the process.

And if you aren’t happy, don’t be afraid to say something. I can’t stress enough that you are accountable for the information that is sent to your members.

Of course there aren’t always trustees there to make sure that members get the support they need.

In a contract-based scheme, there is no-one tasked with acting in members’ best interest and this is where employers can play an absolutely crucial role.

We know that employees trust their employer for information about saving, so we expect them to be a first port of call when members have questions about pensions – both about joining, and throughout their time in the scheme.

To come full circle, this brings me again back to the work we are doing to help employers to comply with their new duties.

Millions more employees will soon be faced with choices about pensions and are more than likely to turn to their employer…

So we need to make sure that all employers know what they can say.

There are strict rules around giving financial advice, and we know that employers are nervous about crossing the line… so last year we published another one of our tools for employers - a guide called ‘talking to your employee about pensions’.

It sets out some of the most common questions that employees might ask, and suggests answers to those questions. It also suggests other places that individuals can go to look for information, or advice about their individual situation.

While it doesn’t actually focus on the reforms or auto-enrolment or opting out, it’s all part of the work I mentioned at the start of this about making sure that employers and schemes are in the best possible position now.

So just very quickly before I open up the floor to take your questions let me run through a simple timeline of our near term activity.

There are two major lines here…. Both of which stretch out beyond the timeframe shown here.

One is our focus on administration and governance which will continue well into the future… as will our focus on bringing standards in DC up.

2012 is the target date for getting records up to scratch… so this will be an important focal point for us, but the overall work will just keep on going.

We will continue to look at governance practice across the industry, focusing wherever we see issues appearing - with the aim of getting practice in all areas to the necessary standard.

Right now we are also reassessing and reviewing the DC risk landscape.

This will make sure that we are focusing on the real risks facing DC members now and in the foreseeable future, and that we know both who is accountable for all aspects of DC provision, but also that we are delivering the most appropriate support and guidance.

This is ongoing work and we’ll be able to say more about this later in the year.

And secondly, our focus on employers will also continue long term, both through communicating with employer representative bodies, with professional advisers, with employers through their trustees, and with employers directly.

I should really draw to a close now…. But hopefully that gives you a better insight into our areas of focus – administration and governance, bringing DC up the agenda, and gearing up auto-enrolment and the other employer duties that sit along it…

…but hopefully it also makes clear that there is plenty of support available now, and more on its way, that will make it easier and smoother for us all to get to a place where we are all delivering high quality, good value pensions and members are getting the most from the pensions on offer.

Thank you…