As a result of auto-enrolment, increasing numbers of individuals are being enrolled into defined contribution (DC) pension arrangements and although governance of these arrangements is not yet legislated, it is an increasing focus for the Department for Work and Pensions (DWP), The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) and should be best practice for any forward-thinking employer.
Most employees auto-enrolled into a pension scheme will not have made active choices and will not be engaged with the pension scheme.
It is important they are investing their money in well-designed, efficiently monitored schemes, where appropriate decisions are made in their interest.
In addition to any internal governance by the employer, from this April minimum standards are being introduced for contract-based schemes, where providers of workplace personal pensions will need to establish independent governance committees (IGCs).
The aim of the IGC is to act in the interest of pension scheme members to ensure they receive value for money, and to raise any concerns about the scheme. As the name would suggest, they will operate independently of the provider, meaning that they can assess schemes without influence.
Ashurst established an internal pensions monitoring committee (PMC) for our contract-based DC arrangement in 2013. Pension decisions remain the responsibility of the employee and while there are currently no statutory obligations for formal monitoring the PMC aims to follow best-practice guidelines to ensure the scheme remains an effective tool for our employees to use in their own retirement planning, and to add an extra layer of comfort for scheme members.
The PMC meets twice a year with a remit to: identify and monitor important trends from scheme information/benchmark data and consider any appropriate actions; review the scheme provider and scheme adviser(s) performance, especially against any service-level agreements; monitor the investment options available to members especially with regards to ensuring the default fund remains fit for purpose; monitor internal controls ensuring statutory requirements are considered and acted on as appropriate; and communicate important issues to members with regular reports through our e-newsletter.
As a result of establishing the PMC, we have seen an increase in the number of employees participating in the scheme, greater levels of engagement (as an example, through increased completion of expression of wish forms) and attendance at our pension clinics.
Nicola Davis is pensions and benefits specialist at law firm Ashurst.