The governance of DC workplace pension schemes
The governance of DC workplace pension schemes

The following Pensions guidance note provides comprehensive and up to date legal information covering:

  • The governance of DC workplace pension schemes
  • Types of DC schemes—terms defined
  • The rise of DC governance
  • Legal framework applicable to DC trust-based schemes
  • Legal framework applicable to contract-based schemes
  • Who regulates DC workplace pension schemes?
  • Who deals with complaints relating to DC workplace pension schemes?
  • Charge and governance measures introduced by the DWP and FCA
  • Historical development of DC governance measures

There are a variety of possible pension arrangements which employers can offer to their employees. These are described in Practice Note: Types of pension arrangements for employees. This Practice Note focuses on the governance of a particular category of workplace pension arrangement, namely defined contribution (DC) workplace pension schemes.

Types of DC schemes—terms defined

DC schemes provide money purchase benefits. In DC schemes (unlike defined benefit (DB) schemes), the contributions paid into the scheme by the employer and employees are defined but the benefits provided by the scheme are not. Benefits are based on the amount of contributions paid into the scheme (by both employer and employee), investment growth and annuity rates at date of retirement. The costs are more stable and predictable for the employer since employees bear the risk that their benefits may not be as great as expected if investments underperform.

Employers usually offer members a choice of funds in which to invest their contributions, with a default lifestyle fund for members who do not select an option. In the lifestyle fund, contributions are invested in equities until a member is within five to ten years of normal retirement date. Investments are then gradually switched into safer asset classes such as bonds, gilts or cash.

The statutory definition of 'money purchase benefits' is contained in the Pension Schemes Act