On 21 November 2013 the Defined Contribution (DC) Code of Conduct entered into force, together with accompanying guidance.
It is intended that the DC Code of Practice will provide practical guidance for trustees of DC schemes as to how they can satisfy (and demonstrate that they have satisfied) legislative requirements and meet the standards of conduct expected by the Pensions Regulator.
The Pensions Regulator has stated that they expect DC trustees to assess their scheme against the standards set out in the DC Code of Practice and has warned that:
“Schemes that fall short of these standards should expect some difficult questions, and they may incur enforcement action in order to rectify breaches in pensions law.”
The Pensions Regulator has also urged professional advisers to familiarise themselves with the details of the DC Code of Practice and accompanying guidance.
In the context of the large number of individuals contributing to a DC pension scheme for the first time as a result of automatic enrolment, the Pensions Regulator is keen to ensure that DC pensions represent good value for money. It has previously set out 31 DC quality features.
The majority of the DC quality features are covered in the DC Code of Practice, with the remaining quality features dealt with in the accompanying guidance.
The Pensions Regulator has stated that: "The quality features in the code have a direct legislative underpin. Hence, if the feature is not present in a scheme, this is likely to be a breach of the law."
The DC quality features are designed to underpin the six principles which the Pensions Regulator believes should be present in all occupational DC trust-based schemes. Schemes which do not satisfy the six principles, such as those Schemes which are not designed to be durable, fair and deliver good member outcomes, should be aware that the Pensions Regulator’s powers are very wide.
We expect that the Pensions Regulator will use its powers to take robust action against trustees of Schemes who do not comply with the Code of Practice. It is therefore sensible to err on the side of caution and review your Scheme now.
- Nigel Bolton