John Reeve, whose previous comments on DC I have dismissed as the “wittering of an out of touch actuary”, has written a telling comment on mallowstreet. I’m sure he won’t mind me re-publishing it here.
Last week the Pensions Regulator issued his Annual Report along with a summary document (there is a comment here on the attention span that most of us now have for his 152 page documents) http://www.thepensionsregulator.gov.uk/about-us/annual-reports.aspx#s15195 . In this he admitted to missing two of his key KPIs on DC Governance.
Frighteningly only 12% of employers surveyed (52% of advisors) were aware of the Regulators 6 principles (target 60%, 90% of advisors). Whilst the way this was measured means that this is smaller employers it is a major failing. In addition 61% (target 75%) of large schemes met 80% of the quality features. For small schemes this falls to 42% (target 50%).
Should we be worried about this?
I think we should. Whatever you think about the DC Principles and Quality Features they are here to stay and the Regulator has set his stool out to see them adopted. With the focus more than ever on DC through AE we can expect the focus of the Regulator to come down even harder on ensuring that these principles and features are met.
Am I alone in fearing that compliance may come at the cost of common sense with Trustees and GPP Governance Committees being forced to focus on jumping through the Regulators hoops rather than focus on the matters that are really important to their members?
I do have some thoughts….
There are two divisions of the Regulator whose work involves DC pensions but you wouldn’t know they worked in the same building.
The Auto-enrolment division concern themselves with the struggle to herd 1.2m cats in an orderly fashion through stages while the DC team struggle on with the 6 principles and the 31 (or is it 32) quality features.
I work with employers with 10-50 employers and I doubt that more than 1% have even heard of let alone care about complying with these principles and features. From now on , all that they are interested in will be that the provider takes care of that for them. Governance is a matter for the Trustees and IGCs.
I see absolutely no impulsion on employers to provide governance for their staff, PQM is totally irrelevant to smaller employers.
What will be interesting is to see for how long the larger companies continue to invest in “own-scheme governance”. My guess is that once commission ,AMDs and swanky defaults are removed, we won’t be seeing much pensions advice from independent advisers and increasingly the responsibility for governance will revert to the provider.
Like it or not, advisers will struggle to add value necessary to command fees equivalent to the commissions they are currently taking.
Increasingly the Regulator will concentrate on the regulation of the handful of master trusts receiving substantial inflows from AE staging ,the small number of occupational DC schemes used as qualifying schemes and the much larger number of derelict occupational DC schemes which still manage a large amount of DC money- but with very variable standards.
IMO- the Principles and Quality Features are weak and unenforceable, the Pension Regulator should concentrate on enforcing the Further Measures for Savers in this year’s DWP paper.
The vast majority of the 40,000 own occ DC schemes on tPRs books would be best transferred to well run master trusts using bulk switching. This will leave the hybrid plans with underpins which are properly DB and the DC sections of DB plans and the high quality DC plans which embrace good governance.
I haven’t read the Pension Regulator’s strategy document and will do now.
If Andrew Warwick-Thompson is reading this, please give some serious thought to the budget reforms and ensuring that occupational schemes do a little better at retirement than they have over the past ten years,
The real failure in DC country has been in decumulation not in accumulation, something that was flagged by Roger Urwin and others back in the 90s as inevitable.
In the context of the failures in decumulation, enforcement of the Quality Features looks a red herring!
I have now read the Pension Regulator’s Annual Report and Accounts from which John quotes.
I’m not qualified to comment on DB , my comments on DC remain unchanged but I’d give a triple tick to the Regulators part in the participation in auto-enrolment.
Most of the 152% take up in the use of tPRs website is attributable to SMEs using their well put together AE website.
I’d like to see the promotion and enforcement of the Minimum Quality Standards at the centre of the DWP’s DC work.
Most importantly, we need to get the 1m employers still to stage auto-enrolment making smart choices on behalf of their staff and not trying to bodge failing schemes into QWPS.
Of the 13,000 employers who’ve staged- let’s make it a 2015 and 2016 KPI that 100% of these schemes meet the Minimum Quality Standards!
That’s not to say we shouldn’t be doing great things to improve DC among the NAPF membership as well but these properly advised schemes probably need less attention.
This article first appeared in http://www.pensionplaypen.com