The Government has issued a call for evidence into quality standards in workplace defined contribution schemes as part of efforts to protect savers who are automatically enrolled into a pension.
The call for evidence, published today, seeks views on setting minimum legislative standards for scheme governance, default strategies, administration and record keeping, and scale.
Ideas put forward in the document include:
- ensuring all schemes are overseen by a governance body, such as a trustee board, with a duty to act in members’ interests;
- making sure default investment options are designed in the interests of members and are regularly reviewed;
- forcing schemes to check regularly that contributions are invested in line with members’ instructions and within five days of being received;
- introducing a duty for schemes to consider whether members are disadvantaged by the size of their scheme. If the scheme is too small, those running the scheme would be required to consider closure or merging with another scheme.
The DWP also asks for information on how members’ interests are balanced against commercial interests.
It says: “This [managing conflicts of interest] is particularly important where the powers of the governing body have been constrained, for example, if the ability to appoint investment managers or administrators for a master-trust rest with the provider rather than the trustee.”
Pensions minister Steve Webb says: “While most schemes offer a good deal to savers, I am concerned there may be some – now or in the future – that do not deliver the standards that should be expected.
“Unlike other financial products, people who are automatically enrolled or automatically transferred into a workplace pension will not have made an active choice about which scheme to join.
“In addition, the long-term nature of pensions means it may not be clear how good an outcome a scheme will deliver for members until they have paid into it for many years. It is therefore particularly important that sufficient protections are in place to ensure that schemes are run in a way that is beneficial for members.
“The Government wants to ensure that every defined contribution scheme used for workplace saving delivers value for money and meets some essential minimum legislative standards.”