Darren Philp takes a look at TPR's draft DC code.
We've all been there. It's Friday afternoon, you've got a massive pile of last minute tasks to do before you can log off for the weekend, and there they are. Computer updates. Sometimes hours of them. Necessary to keep our systems running smoothly, but a bit of a distraction from the day to day routine. Some might see the recent consultation by The Pensions Regulator (TPR) on the DC Code of Practice as a bit of a distraction. However, we would disagree.
At The People's Pension, we were really supportive of the need for the Code to be revised, as since it was last updated the pensions landscape has shifted a lot. Auto-enrolment has brought millions of people into saving for later life for the first time, new master trusts have been born, the charge cap has come into force, and - if all of that wasn't enough - freedom and choice revolutionised ‘at retirement' decisions. So it's definitely time for a moment of reflection, or a cup of tea at least.
In our response to the consultation, we welcomed the clarification the revised Code will provide for trustees. Their role in protecting the future of millions of people (and billions of pounds) must be more clearly set out. And this must include their legal obligations, clearly and to the point. The value for money assessment which is suggested is good news, but it needs to be easily accessible and useful, as must the annual chairman's statement.
So we're going the right way (half way through the updates perhaps), and the language is improving. But the challenge for schemes and trustees are getting bigger all the time. Mastertrusts now have a collective membership of over six million savers.
This will only grow as master trusts increasingly become the vehicle of choice for employers who want to comply in an easy and hassle free way with their auto-enrolment duties. But these savers are of a very different ilk to those who came before them. Their knowledge and trust of pensions is already quite low, and it won't take too big a tabloid scandal to put them off saving for later life altogether.
As a large master trust, we think a fit-for-purpose code is a fundamental piece of the framework governing what is a rapidly growing industry. But it isn't going to go far enough in protecting consumers from the scary world of pensions. Master trusts are multiplying at a magnificent rate. They've become a whole new sector within the pensions industry, but at the moment there is no mandatary assurance regime or regulation in place.
This means that almost anyone can set up a master trust, anytime. There are no regulatory barriers to entry. A potential provider doesn't have to prove that their business model is financially sustainable, or that they're a fit and proper person to be trusted with other people's money. They don't even have to prove they are competent. In essence, it would probably be less difficult to start a mastertrust than survive the first few weeks on The Apprentice.
There's a great swathe of voluntary assurance out there. But that's expensive, and doesn't stop unsuitable providers entering the market. Mandatory and better regulation has to be the end goal, and sooner rather than later.
Overall, we'd probably give the Code a thumbs up for what it is trying to do. While it has the potential to improve governance, it won't solve the problem of master trust after master trust appearing without the effective regulation needed to keep auto-enrolment on course. More still needs to be done overall to improve DC regulation.
As a priority we think Government and the Regulator need to work together on developing a proper regulatory regime for master trusts to ensure lasting scheme quality, and, where there is non-compliance, both need to be ready to act swiftly to enforce the rules.
Much like computer updates, the consultation on the regulator's new DC Code of Practice has been technical and quite time-consuming, but unlike the average computer update, it might actually make a visible difference. Allowing for a few crashes along the way of course, and for further updates in due course. And a few more cups of tea.
Darren Philp is head of policy at The People's Pension
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