Draft key features. Six principles for good workplace DC. Delivering good member outcomes at retirement. Principle 1: Essential characteristics

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1 Six principles for good workplace DC June 2012 Draft key features Delivering good member outcomes at retirement Principle 1: Essential characteristics Principle 2: Establishing Principle 3: People Principle 4: Ongoing Principle 5: Administration Principle 6: Communications to members Schemes are designed to be durable, fair and deliver good outcomes for members. A comprehensive scheme framework is established at set-up, with clear accountabilities and responsibilities agreed and made transparent. Those who are accountable for scheme decisions and activity understand their duties and are fit and proper to carry them out. Schemes benefit from effective through their full lifecycle. Schemes are welladministered with timely, accurate and comprehensive processes and records. Communication to members is designed and delivered to ensure members are able to make informed decisions about their retirement savings.

2 The features on the following pages have been produced as a resource material for those providing and running DC schemes, eg providers and trustees of both occupational pension schemes and work-based personal pension schemes. If present in a DC arrangement they are more likely to result in a good member outcome. Principle 1: Essential characteristics Schemes are designed to be durable, fair and deliver good outcomes for members. All beneficiaries within a pension scheme are treated impartially and receive value for money. 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 charges. Those running schemes understand and put arrangements in place to mitigate the impact to members of business and/or commercial risks. Those running pension schemes seek to predominantly invest scheme assets with entities regulated by the Financial Services Authority (FSA) or similar regulatory authorities. Where unregulated investment options are offered, it must be demonstrable why it was appropriate to offer those investment options. Those running schemes understand levels of financial protection available to members and carefully consider situations where compensation is not available. Products offer flexible contribution structures to members and/or employers (over and above minimum scheme qualifying thresholds). A default strategy is provided which complies with DWP default fund guidance and scheme investment strategy. The number and risk profile of investment options offered must reflect the financial literacy of the membership. Different ranges of investment options could be offered to different membership groups. Investment objectives for each investment option are identified and documented in order for them to be regularly monitored. A process is provided which helps members to optimise their income at retirement. 2

3 Principle 2: Establishing A comprehensive scheme framework is established at set-up, with clear accountabilities and responsibilities agreed and made transparent. Sufficient time and resources are identified and made available for maintaining the ongoing of the scheme. Those running schemes support employers in understanding their responsibility for providing accurate information, on a timely basis, to scheme advisers and service providers. Accountability and delegated responsibilities for all elements of running the scheme are identified, documented and understood by those involved. Those running schemes establish procedures and controls to ensure the effectiveness and performance of the services offered by scheme advisers and service providers. Those running schemes establish adequate internal controls which mitigate significant operational, financial, regulatory and compliance risks. Arrangements are established to review the ongoing appropriateness of investment options. Principle 3: People Those who are accountable for scheme decisions and activity understand their duties and are fit and proper to carry them out. Those running schemes understand their duties and are fit and proper to carry them out. Those running schemes act in the best interests of all beneficiaries. Those running schemes are able to effectively demonstrate how they manage conflicts of interest. 3

4 Principle 4: Ongoing Schemes benefit from effective through their full lifecycle. Those running schemes are open and honest with their regulators and regulatory guidance is addressed in a timely and effective manner. Those running schemes regularly review their skills and competencies to demonstrate they understand their duties and are fit and proper to carry them out. Sufficient time and resources are made available for monitoring and reviewing schemes to ensure that they continue to meet good practice and continue to include the essential characteristics established under Principle 1. Those running schemes maintain procedures and controls to ensure the effectiveness and performance of the services offered by scheme advisers and service providers. Those running schemes maintain adequate internal controls which mitigate significant operational, financial, regulatory and compliance risk. Those running schemes take appropriate steps to pursue and resolve all late and inaccurate payments of contributions. Those running schemes monitor the ongoing suitability of the default strategy. The performance of each investment option, including the default, is regularly assessed against stated investment objectives. Principle 5: Administration Member data across all membership categories is complete and accurate and is subject to regular data evaluation. All scheme transactions are processed promptly and accurately. Schemes are welladministered with timely, accurate and comprehensive processes and records. Administrators maintain and make available their complaints process. Administration systems are able to cope with scale and are underpinned by adequate business and disaster recovery arrangements. 4

5 Principle 6: Communications to members Communication to members is designed and delivered to ensure members are able to make informed decisions about their retirement savings. All costs and charges borne by members are disclosed to members annually. Members are regularly informed that their level of contributions is a key factor in determining the overall size of their pension fund. Scheme communication is accurate, clear, understandable and engaging. It addresses the needs of members from joining to retirement. Members are regularly informed of the importance of reviewing the suitability of their investment choices. Those running schemes clearly communicate to members the options available at retirement in a way which supports them in choosing the option most appropriate to their circumstances. How to contact us Napier House Trafalgar Place Brighton BN1 4DW T F E customersupport@tpr.gov.uk Six principles for good workplace DC Draft key features The Pensions Regulator June 2012 You can reproduce the text in this publication as long as you quote The Pensions Regulator s name and title of the publication. Please contact us if you have any questions about this publication. We can produce it in Braille, large print or on audio tape. We can also produce it in other languages.