PP looks at industry responses to the draft DC code
At a glance
- The Pensions Regulator’s draft DC code ended consultation on 29 January 2016
- The industry welcomed the simplicity and brevity of the new draft
- Many thought TPR’s one-size-fits-all approach will not work
The industry has responded to The Pension Regulator's (TPR) consultation on the draft defined contribution (DC) code.
The code, which is shorter and simpler than the 2013 version, is due to come into force in July.
TPR wants the revised code to reflect the pension flexibilities introduced in April 2015, while ensuring the language was simple and accessible.
The People's Pension head of policy and market engagement Darren Philp says he is supportive of the need to revise the code as the pensions landscape has shifted vastly since 2013.
In its response, the People's Pension agreed that the trustees' legal obligations must be more clearly set out. However, Philp is concerned that more still needs to be done on DC regulation, especially in terms of master trusts.
He says anyone can set up a master trust, and not enough is being done to protect consumers: "As a priority we think the government and TPR need to do more to improve DC regulation, and work together to develop a proper regime for master trusts to ensure scheme quality, and where there is non-compliance, both need to act swiftly to enforce the rules."
Sackers head of DC Helen Ball also thinks the needs of larger schemes and master trusts may not have been fully considered. For instance, the draft code expects trustee boards to invest contributions into the scheme within three working days. This is a reduction from five working days in the current code.
"We question the rationale for this," Ball says. "In practice, a three-day turnaround can be difficult to achieve. By way of example, larger schemes and master trusts that run their contributions on a set process may not hold reconciled contributions."
Irwin Mitchell partner Penny Cogher is concerned the regulator is overlooking the differences between different types of DC scheme.
She says: "TPR justifies its approach on the basis that the trustees of these schemes are all responsible for being ‘custodians of members' retirement funds', which is obviously true.
"However, whether one size really fits all must be debatable and TPR's current approach seems somewhat extreme. Although perhaps there's nothing to worry about if TPR delivers what it has promised on this, ‘short and simple', ‘clear and unambiguous', and ‘statements all in one place'.
The draft code expects trustee boards to regularly review member communications and take account of innovations in technology that may be appropriate for their members. This is welcomed by Intelligent Pensions head of pathways Andrew Pennie, who says it is refreshing to see TPR embrace the use of new technology to help DC members.
"Effective technology could be a replacement for wake-up packs, whereby the member can volunteer additional information that helps to guide the member in a more intuitive and relevant direction. Furthermore, the use of technology as a conduit to low-cost regulated advice is ideal for staff approaching retirement, especially where employers are meeting some or all of the cost."
However, Pennie remains unconvinced of TPR's stance on communicating to members, which continues to place emphasis on the use of wake-up packs.
"The revised code refers to continued use of wake-up packs. However, they have not worked previously and are likely to be less effective with the increased choice and complexity that pension freedoms deliver.
He continues: "Given that schemes don't know about members' other financial arrangements, personal circumstances and objectives they can never communicate in a highly effective and engaging way. Instead, they must communicate about all possible options and scenarios and all this does is create over-information, confusion and a total lack of engagement."
Sackers' Ball supports the use of technology to assist trustees, but like Cogher, is concerned the regulator is not tailoring approaches to different types of scheme and membership.
She says: "We consider that references to ‘developments in technology' in the code should make it clear that account needs to be taken of the suitability of any developments for members, as well as the associated costs."
Pennie says that the main reason for revising the DC code is directly because of the pension freedoms, and the impact that has had on investment strategies and member communications – particularly in the pre-retirement years.
However, he thinks TPR has overlooked the fact that one-size-fits-all solutions do not work for people using flexi-access drawdown.
He says: "Rather than a one-off event, like annuity purchase and cashing out, drawdown will be an ongoing series of cash and income withdrawals that will be different for every single person – as such, no two drawdown investment strategies should be the same and schemes need to help members achieve a tailored glidepath if they are to achieve the best possible retirement outcome."
While the draft DC code has been welcomed for its clarity and brevity, it looks like there is still some work to be done.
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