Pension schemes: 'Good practice' outlined by regulator

People Running a pension scheme can be a very complicated task

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The Pensions Regulator plans to ensure higher standards for the running of defined contribution pension schemes.

These are the increasingly common schemes in which members accumulate a pot of money with which to buy a pension when they retire.

The new guidance will put the onus on pension companies and trustees to make sure their DC schemes are well run.

As many as eight million people will join such schemes in the next few years, under automatic enrolment.

The regulator is concerned that employees, particularly of small companies, should receive a good deal.

"We expect schemes to demonstrate how they will comply with our principles for good DC schemes and this will give employers reassurance about their choice of scheme," said Bill Galvin, the chief executive of the Pensions Regulator.

"Members bear risks where DC schemes perform poorly. Many members will not have any experience of DC pension saving, so it's vital that schemes are run by capable people who act in members' interests - from enrolment to retirement.

Pension schemes explained

  • Final-salary scheme: Guaranteed pension based on earnings at the end of your career and length of service
  • Career average scheme: Guaranteed pension based on your average pay over your career
  • Defined contribution scheme: Determined by contributions and investment returns. Usually worth less than final-salary pensions

"Where we find schemes fall short of the standards we have set out, we will expect them to improve. Some smaller schemes may find this challenging and decide that the interests of their members would be better served in another type of arrangement," he added.

The regulator is worried that automatic enrolment, a long-term process which started in the autumn of 2012, means that hundreds of thousands of employers, and millions of workers, will start dealing with a company pension scheme for the first time.

Specifically, the regulator wants schemes to comply with "good practice" in the way they deal with contributions and investments, and carry out their administration.

It wants to make sure that DC schemes give their members value for money, keep them up to date with developments, and give them a proper choice when turning their pension pots in annual pensions, known as annuities.

And it wants to ensure that: "All costs and charges borne by members are transparent and communicated clearly at point of selection to the employer to enable value for money comparisons to be made and to assess the fairness to members of the costs and charges."

The consultation on the new standards starts on 10 January and ends on 28 March 2013.

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