Defaults and dashboards: Top DC and AE stories from 2016

The sound of the gong struck by the pension freedoms still reverberated throughout 2016, with DC schemes adjusting default structures, while the accessibility of pots made pensions a 'soft target' for fraudsters according to some.

Looking ahead, as mastertrusts are set to dominate the scene in years to come, the regulatory screws for the sector were – some might say at last – starting to be tightened on multi-employer DC schemes.

The future reputation and trustworthiness of DC will also hinge on the success or failure of the pensions dashboard project, which could make life a lot easier for millions of DC savers, but security will once more be the litmus test.

Regulator announces mastertrust crackdown

April 18

A month ahead of the Queen's speech outlining tighter rules for mastertrusts as part of the pension schemes bill, the Pensions Regulator in April announced plans to crack down on poorly governed mastertrusts.

The regulator said it would work with the Institute of Chartered Accountants in England and Wales to revise its mastertrust framework in light of its new DC code.

As auto-enrolment gathered pace, many smaller mastertrusts were established, which failed to reach the scale of their more successful counterparts and whose members, according to the regulator, “risk becoming trapped in a scheme that attracts insufficient members or assets to be sustainable”.

In addition to a revised framework, the regulator is looking to ensure full compliance with both the requirement to issue a chair’s statement and comply with charge control requirements in the annual scheme return.

It is also planning to proactively engage with the largest 50 per cent of active DC mastertrusts, representing roughly 95 per cent of mastertrust membership.

300 Scots hit by pension scam as advice gap persists

February 17

In February this year, five months before BBC's Panorama programme exposed pension scams, Pensions Expert reported how Scottish police were investigating a £10m pension liberation fraud that had targeted more than 300 people north of the border.

Campaigns and codes of practice have helped shore up scheme and member defences against scams, but the large-scale operation in Scotland was evidence of the sustained ambitions of pension fraudsters.

Detective inspector Graeme Everest of Police Scotland said: “The majority of the victims appear to be individuals who have recently been made redundant or have been vulnerable because of their financial situation. Referral payments were also used as inducements.”

He said that while the current sum involved was £10m, the actual amounts are likely far higher. "It is a difficult one to place an exact figure on, as many individual victims will not realise that they have been defrauded,” he said, noting that the true extent of pension fraud may not surface for a number of years, until victims reach retirement.

Fujifilm develops its DC default fund approach

January 18

As schemes were rethinking DC glide paths following the introduction of the pension freedoms in 2015, Fujifilm overhauled its DC default fund to improve performance and relevance to members.

David Satchell, chair of trustees, said the scheme had revised the default's structure to address two issues, with the main concern being that a one-size-fits-all default was no longer appropriate. “There was also concern about the performance of gilt and bond funds,” he added.

The proposed new structure will incorporate target date funds and feature a longer growth phase running up to five years from a member's assumed retirement date. Passive global equities will be replaced with diversified growth funds.

On DGFs, Satchell said: “The reduced volatility, whilst still benefiting from equity-like returns – which the trustees have witnessed in the DB section – is an important consideration and facilitates a shorter period over which funds are switched to the protection phase.”

More detail emerges on pensions dashboard

June 6

The concept of a pensions dashboard was announced as an objective by the Financial Conduct Authority in December 2014, and research by provider B&CE showed strong support for the idea.

In June, the working group charged with devising a pensions dashboard released its view of what it should look like.

The Pensions Finder project said the dashboard should begin as a single platform standing on three pillars: digital identification, a dashboard user interface and a service to search for old pension accounts.

The platform will be built standalone, with architecture that will allow different models, including multiple dashboards, to be integrated in the future, with a prototype ready for public testing in 2017 before going live in 2019.

The Association of British Insurers intends to lead the development of the next phase of the pensions dashboard and may even create its own prototype, but said it will consult the wider industry to ensure the broadest possible coverage.

Tesco gears DC default towards freedoms

March 28

Tesco hit the headlines for many reasons in 2016, but in the pensions world it did so for its new DC scheme. The supermarket chain's Retirement Savings Plan had been set up in November last year following the closure of Tesco's defined benefit plan.

Covering one of the UK's largest private sector workforces, the DC scheme offers matched contributions of up to 7.5 per cent for 200,000 eligible employees, and after three months had already reached £165m in assets.

The scheme operates different defaults depending on what phase of their career members are in: 'far to go', 'middle distance' and 'nearly there'. It also divides the final stage into three defaults, targeting cash, drawdown or annuity, to aim members towards a specific outcome in retirement.

While part of a large mastertrust, Tesco set up an internal committee to provide scheme governance, which meets at least quarterly and is intended as a supplement to the mastertrust.