Briefing Notes

Briefing Note 78 - The impact of DC regulation on employer scheme choice

Under automatic enrolment, employers are required to select a pension scheme for their employees. Typically employers have used either contract-based pensions, such as Group Personal Pensions (GPPs), or trust-based ones, such as Master Trusts, for automatic enrolment. Differences in the arrangements of these pensions, and in how they are regulated mean that an employer’s choice could have implications for employees’ outcomes.

This Briefing Note provides an overview of GPPs and Master Trusts and considers the different regulatory regimes in which they operate, including a high level assessment of their relative strengths. The note goes on to outline some of the considerations that employers need to take into account when selecting a pension scheme for automatic enrolment.

It finds that while the trust-based regime can encourage the provision of pensions with excellent governance structures, TPR relies on trustees and whistle-blowers to take action and this may take place only after the occurrence of an adverse event. In contrast, while the FCA regime is considered relatively rigorous, its approach may not be as appropriate for workplace pensions where the member is typically not able to choose to change pension scheme.