The Pension Regulator’s document on regulating Defined Contribution (DC) pension schemes has been criticised by Gissings for neglecting the fact that not enough people are joining DC schemes.
The consultation period for the government’s How the Pensions Regulator will regulate defined contribution schemes in relation to risks to members document, which started on 13 November 2006 will close on 2 February 2007. In its submitted response, Gissings, has said the proposals fail to sufficiently address lack of financial education; poor membership take up rates and payment of insufficient contributions.
However, the consultation document does specifically set out five key areas of risk to DC members which include, unduly high charges; poor decisions on retirement choices and lack of member understanding.
Gissings also points out that the consultation document focuses too much on schemes with more than 1,000 members, rather then the 97% of DC schemes which have less than 100 members. Martin West, director of actuarial and investment services at Gissings, said: "We question whether the Regulator has identified the major risks facing members. Considerations should be given to lack of financial education, poor membership take up rates and payment of insufficient contributions."
He continued: "These issues are central to whether an individual will have sufficient pension savings at retirement to purchase a reasonable pension. The Regulator has concentrated its analysis on the internal workings of defined contribution schemes at the expense of the major issues."
Gissings expressed concern about the depth of the Regulator’s involvement in DC schemes and referred to employers’ desire to reduce the regulatory burden they face as being a major reason for the move from trust to contract-based schemes. Gissings went on to warn that without a ‘balanced approach’ employers might stop providing pensions in favour of cash alternatives.