Guidance for offering a default option for defined contribution automatic enrolment pension schemes
The Department for Work and Pensions is issuing this guidance to set out standards for default options in automatic enrolment defined contribution (DC) pension schemes. This default options guidance is principles-based and is a statement of good practice intended to support existing legislation. By this we mean it sets out high-level, non-regulatory principles to help establish good decision making when developing default options.
It is aimed at providers, advisers, employers, trustees of DC schemes, fund managers and governance committees of automatic enrolment DC pension schemes and sets out the standards which should be met when governing, designing, reviewing and communicating the default option. This guidance is not aimed at default option members themselves, but seeks to promote good practice on their behalf.
This guidance has been developed with the support of the Financial Services Authority (FSA) and should be read in conjunction with their requirements on regulated firms.1 The Pensions Regulator (TPR) has been consulted regarding the development of the guidance, and it has been informed by their ongoing review of how they regulate DC provision. This guidance builds on principle four of the Investment Governance Group’s DC Principles for Investment Governance2, which states that an appropriately designed default investment strategy should be offered for members who prefer not to make a choice.
The guidance is split into two distinct sections; one relating to Workplace Personal Pensions (WPPs) and another relating to trust-based occupational pension schemes. Although both types of scheme provide default options, the governance and underlying responsibilities differ between WPPs and occupational pension schemes.
DWP will be monitoring adherence with this guidance via tools such as the DWP charges survey. The guidance will be reviewed periodically by DWP to ensure that it evolves with experience and consistently reflects good practice. TPR also regularly reviews standards of governance and their findings will feed into DWP’s review of the guidance.
Following a review, if there is strong evidence to suggest that the guidance is being wilfully ignored or that it is not having the desired effect of promoting good practice, DWP may consider issuing statutory instruments to uphold the guidance and protect members’ interests.