Code of Practice 13/ DC Regulatory Guidance

Agenda Background Code of Practice 13 v. DC Regulatory Guidance DC Focus areas Action: Timeline 2

Consultant & Client Manager Spence & Partners Limited Founding representative on DC Governance Committee Experienced in historic and recent Trust based DC pension reviews Private and Confidential 2 Chris Roberts

Introduction Confidential: internal use only 4 Background

Auto Enrolment: the starting gun (and we haven’t finished yet!)Plethora of Consultations / guidance notesParticular TPR concern around smaller schemes governance Investment Governance Group: 6 DC investment principles‘Good Member Outcomes’Significant increase expected in DC scheme members placing Trustees under spotlightDC modules added to Trustee Toolkit Background Private and confidential

Code of Practice 13 v. DC Regulatory Guidance Private and confidential 5

Code of Practice 13 v. DC Regulatory Guidance Private and confidential Both Effective Applicable to Trustees of: DC schemes, including those with DB underpin DC sections within DB trust AVC arrangements Help deliver Good Member Outcomes Code of Practice Draws on TKU / Internal Controls CoPs 23 Quality Features across 5 core governance areas Quality Features: linked to pension legislation Structure: legal requirements / practical guidance No penalty for non-compliance, but... Regulatory Guidance Read in conjunction with CoP 13 - greater DC focus 9 Quality Features across 4 core governance areas (2 from CoP) Quality Features: those reflecting ‘good practice’ Structure: best practice guidance / occasional reference to legal requirements

DC focus areas

Investment (CoP/RG) Governance (RG) Administration (CoP/ RG) Member communications (RG) DC focus areas Private and Confidential

(i) ‘Set investment objectives; default strategy’ Identify / document each fund’s investment objective Fund options and default meet needs of actives and deferreds Review investment objectives for each fund options Investment (CoP 12 OF; RG1 QF; 70 paragraphs Private and Confidential

(ii) ‘security / liquidity of scheme assets’ Assets traded on regulated markets Understand financial protections for members (e.g. FSCS) Mitigate impact of business / commercial risks on members Investment (Contd.) Private and Confidential

(iii) ‘monitor / review default strategy and fund performance’ Performance / ongoing suitability Agree triggers for review New DC investment products Changing membership profiles Changing regulatory requirements Investment (Contd.) Private and Confidential

(iv) ‘communication with members’ Regular communication re. member’s investment strategy and implications Investment (Contd.) Private and Confidential

Governance Private and Confidential (i) ‘ensure members receive value for money’ (VFM) 4 Step VFM review: Collect information (benefits and costs of membership) Criteria for assessing VFM Compare criteria with other schemes Evaluate and act

Governance (contd.) Private and Confidential (ii) ‘transparency of costs and charges’ Clearly disclosed to members Clearly disclosed to employer at point of product selection (iii) ‘contribution levels’ Offer flexible contribution structures Advise members of impact of contribution level on pension pot/ ability to pay more, etc. Monitor efficiency of contribution amendment process

Administration Private and Confidential (i) ‘Focus on internal controls given particular risks in DC schemes’ Provision of SMPI Review lifestyling mechanics Review contributions and investments Maintenance of Payment Schedule

Administration (contd.) Private and Confidential (ii) ‘establish robust retirement process’ Help members optimise income at retirement Options clearly communicated so as to support member in selecting most appropriate option Any insurer drafted communications to be compliant with ABI Code of Conduct on retirement choices Information regarding appointment of advisor / annuity broker 5 Stage Retirement Process suggested

Member communications Private and Confidential Improve retirement outcomes through communications which are: Accurate Clear Understandable Engaging

Actions: timeline

Private and confidential Now Plan in place to deliver governance statement y/e after Autumn 2014 Secondary legislation confirms new quality / charges measures – awareness of potential further compliance actions required During 2015 Governance statement to be published April 2015 New governance standards go live Qualifying Scheme default fund 0.75% charge cap (so AVC arrangements not affected) ?? CoP / RG to be updated 2017 Charge cap review