Better workplace pensions: further measures for savers

Introduction

In this Alert:

• Key points 
• Background
  
• Minimum quality standards
  
• Charges and transparency
  
• Proposed timetable
  
• Action points

Key points

The changes will come into force in two stages, April 2015 and April 2016, with potential for further changes in 2017.  They cover:

• Governance – minimum requirements will apply from April 2015 for all DC workplace pension schemes:
  • Occupational pension scheme trustees will need to provide an independently audited statement that they have met the new governance standards.
  • Contract-based schemes will need to establish Independent Governance Committees (IGCs) to perform a similar role to trustees, to improve accountability and assess value for money.  They will also have an obligation to report on how they have met the new governance standards.
• Charges – from April 2015 there will be a charge cap on default funds of 0.75% and a ban on commission/consultancy charges in DC schemes which can be used for auto-enrolment (“AE”) (known as “qualifying schemes”).  From April 2016, all active member discount (AMD) structures and member borne commission payments will be banned in qualifying schemes.
• Transparency – from April 2015 there will be mandatory disclosure of costs and charges in a standard format and a duty on trustees and IGCs to consider and report on these.

Background

Minimum quality standards

• All schemes must be governed by a body with a duty to act in members’ interests (trustee(s) for trust-based schemes and IGCs for contract-based schemes).
• The governing body must be able to freely exercise its duty to act in members’ interests and must be able to explain how any conflicts of interest are handled.
• The majority of individuals, including the chair, of the governing body must be independent of the pension provider and, to address potential conflicts of interest, the boards of master trusts will face extra requirements to demonstrate their independence.
• The governing body must consider the design and net performance of default investment strategies; standards of administration; charges borne by scheme members; and costs incurred through investment of pension assets.
• The governing body must have, or have access to, all of the resources, knowledge and competencies necessary to properly run the scheme.
• The chair of the governing body must produce an annual report explaining how the scheme has performed against the quality requirements.

Charges and transparency

• the charges borne by members in default arrangements are fair, and
• there is full transparency of all costs and charges.

• Providers of workplace DC schemes to disclose full information on all charges and costs in a standardised and comparable format to trustees and IGCs.
• Providers and trustees to provide information, in a standardised comparable format, about charges and costs to employers before the employer selects a scheme and then annually.
• Providers and trustees to provide information about charges to new and prospective scheme members, and headline charges and costs annually, in their annual benefit statement.
• The Secretary of State and the FCA to legislate/make rules to require the publication of information about transaction costs and administration charges.

Proposed timetable

Action points