Enabling good outcomes for members of DC schemes Andrew Warwick-Thompson Executive Director, DC Governance and Administration Corporate Adviser Summit October 2013

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission Current landscape DBHybrid DC occupational DC work-based personal pensions DC memberships Public Sector Schemes5,5901,62039,0001,780Total330 Total memberships 8.0m 3.6m DB 1m DC 1.4m2.6m5m12.7m Active memberships 1.4m0.4m DB 0.5m DC 0.6m2.6m3.7m5.1m The long-term shift in the landscape places greater prominence on DC There are 36,000 occupational micro DC schemes Active membership is expected to increase significantly as automatic enrolment is introduced The DC landscape

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission *central estimate Source: The Pensions Regulator projections Anticipated growth of the major DC segments Total active membership in DC schemes through staging

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission The DC journey January published discussion paper ‘Enabling good member outcomes in work-based pension provision’  reviewed DC regulatory strategy to tackle current and future challenges in the DC landscape, particularly impact of automatic enrolment from 2012  identified six elements necessary to achieve good member outcome of adequate income in retirement appropriate contribution decisions appropriate investment decisions efficient and effective administration value for money appropriate retirement decisions protection of assets  segmented the market based on scheme type / employer engagement  assessed risk to achievement of good member outcomes for each segment

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission The DC journey continued Responses to the discussion paper  Strong consensus that the six elements of a good member outcome were right  Suggested that we refine the segmentation approach We challenged industry to define how they might:  Embrace voluntary accreditation of auto-enrolment schemes  Better enable trustees and employers to compare value for money from schemes  Better clarify accountabilities in DC provision November 2011 – published six DC principles  Standards and characteristics of a good DC scheme June 2012 – published draft DC features  Features that underpin the six DC Principles –January 2013 – DC consultation  DC code, regulatory guidance, regulatory approach

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission TPR/DWP joint publications revised timetable – Proposal Lay DC Code Consultation response published Defined Ambition & Quality Standards Quality Standards Call for Evidence C&E Policy published DC Toolkit modules DC Regulatory Strategy published DC Regulatory Guidance JulyAugustSeptemberOctoberNovember Compliance & enforcement policy targeted consultation Employer and Adviser guides & Management Committee Guidance DC Code Summary DC Code “made”

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission To protect the benefits of members of work based pensions Our regulatory approach We are committed to increasing confidence and participation in work- based pensions EDUCATE ENABLE ENFORCE To promote, and improve the understanding of, the good administration of work-based schemes Codes of practice Web tools Trustee toolkit Guidance Thematic reviews Use of powers Regulatory statements Risk tolerance Enable good member outcomes Prevent serious loss

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission Our DC priorities Support employers in selecting high quality, value for money schemes that deliver good member outcomes Our aim Setting the standards we expect schemes to demonstrate Updating existing resources and developing additional tools Improving the performance of small and medium schemes Setting out our expectations of administrators, particularly on record keeping Educate and enable Consulting on our compliance and enforcement approach Conducting thematic reviews Intervening where schemes are not offering value for money Enforce

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission Topics for discussion Good member outcomes Pension liberation fraud Small schemes Retirement choices Value for money Anything else?

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission Good member outcomes Value for money Effective and efficient administration Appropriate investment decisions Appropriate contribution decisions Adequate retirement income Protection of assets Appropriate decumulation decisions

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission Pension liberation fraud

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission Base: All DC schemes (152); *All DC schemes that document their internal controls (110) Small schemes % yesSmall DCMedium DC Large DC Board meets at least every 6 months 34%68%94% Documented internal controls54%72%90% Risk register in place*56%64%96% Documented service standards (admin) 52%78%90% Formal documented policy on TKU24%32%60% Reviewed SIP in last 3 years48%62%85%

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission Retirement choices Current initiatives to drive better member outcomes ABI code of conduct on retirement choices/annuity window DWP/HMT OMO review group FCA thematic review of annuity market Money Advice Service guide TPR revised retirement guidance Longer term Re-thinking decumulation Effective de-risking Emergence of Managed DC Innovative product development when scale is reached

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission Value for money A scheme offers value for money where member-borne costs and charges deliver good value in relation to the benefits provided to members, relative to other options available in the market The regulator’s role: Working with the market, to deliver an approach that allows employers and trustees to undertake meaningful value for money assessments on an ongoing basis. The regulator does not seek to specify what represents value, but will seek to intervene where employers and trustees are frustrated in their ability to assess it.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission Value for money continued Progress is required so that: –All costs and charges (product and scheme) are captured and consistently reported –Costs and charges are attributable to specific benefits –Investment returns are captured and their benefits relatable to costs –Comparison via benchmarking is facilitated However: absent effective demand-side pressure – even this may not be enough, hence the DWP’s consultation on a charge cap for qualifying schemes.

Do similar schemes with similar charges deliver similar benefits? Trustees/Employers Complete VFM Statement Audited VFM Statement Filed Trustees Compare Their Scheme to Other Similar Schemes Value for money: a potential process TPR Publish Segmented Data Trustees/employer; negotiate/change provider/do nothing What are my members getting? What are my members paying? Do similar charges deliver similar outcomes? This presentation remains the property of The Pensions Regulator. The contents of these slides should not be reproduced without express permission.

Enabling good outcomes for members of DC schemes Andrew Warwick-Thompson Executive Director, DC Governance and Administration Corporate Adviser Summit October 2013