Code of Practice 13/ DC Regulatory Guidance

Agenda

Background

Code of Practice 13 v. DC Regulatory Guidance

DC Focus areas

Action: Timeline

2

Private and Confidential3

• Consultant & Client

Manager

• Spence & Partners

Limited

• Founding representative

on DC Governance

Committee

• Experienced in historic

and recent Trust based DC

pension reviews

Chris Roberts

Introduction

Confidential: internal use only 4

Background

Auto Enrolment: the starting gun (and we haven’t finished yet!)

Plethora of Consultations / guidance notes

Particular TPR concern around smaller schemes governance

2010 - Investment Governance Group: 6 DC investment principles

‘Good Member Outcomes’

Significant increase expected in DC scheme members placing Trustees under spotlight

DC modules added to Trustee Toolkit

Background

Private and confidential

Code of Practice 13 v. DC Regulatory Guidance

Private and confidential 6

Code of Practice 13 v. DC Regulatory Guidance

Private and confidential

Both

Effective 21.11.13

Applicable to Trustees of:• DC schemes, including those

with DB underpin• DC sections within DB trust• AVC arrangements

Help deliver Good Member Outcomes

Code of Practice

Draws on TKU / Internal Controls CoPs

23 Quality Features across 5 core governance areas

Quality Features: linked to pension legislation

Structure: legal requirements / practical guidance

No penalty for non-compliance, but...

Regulatory Guidance

Read in conjunction with CoP 13 - greater DC focus

9 Quality Features across 4 core governance areas (2 from CoP)

Quality Features: those reflecting ‘good practice’

Structure: best practice guidance / occasional reference

to legal requirements

DC focus areas

Private and Confidential

• Investment (CoP/RG)

• Governance (RG)

• Administration (CoP/ RG)

• Member communications (RG)

DC focus areas

Private and Confidential

(i) ‘Set investment objectives; default strategy’

• Identify / document each fund’s investment objective

• Fund options and default meet needs of actives and deferreds

• Review investment objectives for each fund options

Investment (CoP 12 OF; RG1 QF; 70 paragraphs

Private and Confidential

(ii) ‘security / liquidity of scheme assets’

• Assets traded on regulated markets

• Understand financial protections for members (e.g. FSCS)

• Mitigate impact of business / commercial risks on members

Investment (Contd.)

Private and Confidential

(iii) ‘monitor / review default strategy and fund performance’

• Performance / ongoing suitability

• Agree triggers for review

• New DC investment products

• Changing membership profiles

• Changing regulatory requirements

Investment (Contd.)

Private and Confidential

(iv) ‘communication with members’

• Regular communication re. member’s investment strategy and

implications

Investment (Contd.)

Private and Confidential

Governance

(i) ‘ensure members receive value for money’ (VFM)

• 4 Step VFM review:

• Collect information (benefits and costs of membership)

• Criteria for assessing VFM

• Compare criteria with other schemes

• Evaluate and act

Private and Confidential

Governance (contd.)

(ii) ‘transparency of costs and charges’

• Clearly disclosed to members

• Clearly disclosed to employer at point of product selection

(iii) ‘contribution levels’

• Offer flexible contribution structures

• Advise members of impact of contribution level on pension

pot/ ability to pay more, etc.

• Monitor efficiency of contribution amendment process

Private and Confidential

Administration

(i) ‘Focus on internal controls given particular risks in DC schemes’

• Provision of SMPI

• Review lifestyling mechanics

• Review contributions and investments

• Maintenance of Payment Schedule

Private and Confidential

Administration (contd.)

(ii) ‘establish robust retirement process’

• Help members optimise income at retirement

• Options clearly communicated so as to support member in

selecting most appropriate option

• Any insurer drafted communications to be compliant with ABI

Code of Conduct on retirement choices

• Information regarding appointment of advisor / annuity broker

• 5 Stage Retirement Process suggested

Private and Confidential

Member communications

• Improve retirement outcomes through communications which are:

• Accurate

• Clear

• Understandable

• Engaging

Actions: timeline

Actions: timeline

Private and confidential

Now

• Plan in place to deliver governance statement y/e after 31.12.14

Autumn 2014• Secondary

legislation confirms new quality / charges measures – awareness of potential further compliance actions required

During 2015• Governance

statement to be published

April 2015• New

governance standards go live

• Qualifying Scheme default fund 0.75% charge cap (so AVC arrangements not affected)

??

• CoP / RG to be updated

2017

• Charge cap review