The focus of defined contribution (DC) pension schemes governance has often previously been based around fund strategies and performance. With an outdated idea schemes are straightforward and ‘run themselves’, much like a bank account with money in and money out. Though it has not received as much attention, the standard of administration in DC governance is vital.
TPR has turned its focus to administration governance and recognises the increased risk to members of poor DC administration. The PASA Standards were put in place as an outcome-based guide to what good administration should look like, covering all types of pension scheme. However, there are some challenges and issues unique to DC arrangements. PASA believes there is a need for additional DC specific administration guidance.
Good DC administration is not simply the responsibility of scheme administrators. Oversight and governance is at three levels – the administrator/provider, the employer and (for trust based schemes) trustees. Regular communications and input from the scheme’s employer and trustees are required to make sure:
- processes are holistic and effective
- members are engaged
- data is good
- issues are identified quickly to avoid the need for rectification
- reporting is clear, informative, and understood by all parties
This document provides guidance and instructions for all stakeholders involved in the DC administration process.
DC is on the rise, with more choice of the type of arrangements available. Group DC arrangements such as Group Personal Pensions (GPPs) and Master Trusts have led to confusion for some employers in terms of defining responsibilities and rights to access certain information. What belongs to the employer and what belongs to trustees? Where do employers’ responsibilities end and where do the administrators’/trustees’ start? This is a key area in the Guidance aiming to alleviate this confusion.
The arrival of automatic enrolment has led to a whole new market of employers appointing a pension provider, often for the first time. Many of these employers won’t have a team dedicated to pensions. We hope this Guidance will provide a useful resource on what is expected from all parties in the administration process, specific to their pension arrangement type.
Clear, useful and informative administration reporting is essential for good DC Governance. All stakeholders need to understand the content of the reporting and be able to identify what is essential, what is useful and what is a ‘nice to have’. More importantly, robust and relevant Service Levels Agreements (SLAs) need to be established by all parties. Clearly defined reports let the administrator, employer and trustees spot any service issues quickly.
PASA invited key individuals from across the industry with wide ranging DC skills to form the DC Governance Working Group (DCGWG). The Group agreed five areas of focus; Data, Transitions, Decumulation, Reporting, and Controls and Procedures. TPR was a welcome observer, keeping a close eye on the group’s findings as they developed.