The Pensions Regulator has today published a list of the core components of a good defined contribution scheme that it believes are most likely to result in a better income for savers at retirement.
Commenting on the requirements, Peter McDonald, partner in PwC’s pensions practice, said:
“Employers who comply with these proposals will go a long way towards helping members make the most out of their pension savings. If pension providers implement these proposals it could increase pension payouts for many people by around 10% over a life time, without members making any extra contributions. For example, greater transparency and governance will tend to reduce costs and flexible contribution structures encourage greater saving over the long term. The process identified to help members optimise their income at retirement will also boost payouts. This is great news for employees at a time of significant pressure on pension schemes.
“With automatic enrolment just around the corner, this is the right time for pension providers and employers to overhaul how they deliver good defined contribution pensions as many arrangements still reflect best practice from a decade ago. As the defined contribution market is set to expand it will also bring new challenges on governance, adequacy, communications and investment which providers and employers will have to tackle. Employers and pension providers now have the framework from The Pensions Regulator to contribute in rebuilding trust in pensions. The commitment to making pension arrangements simple and durable will be central to this.
“This is a wake-up call for employers with defined contribution pension schemes as many will need to review the level of services they provide to members, including the charges, the investment fund range offered and the level of support provided to members at retirement. Employers and pension providers will now have to work much harder to demonstrate that their schemes are meeting the new principles and the detailed draft features outlined by the regulator.”