Britain’s Pensions Regulator plans to write to companies, which employ about half of the nation’s workforce, over the next six months to inform them about the automatic enrolment in company schemes, the most sweeping overhaul of workplace retirement savings in decades.
The plans are outlined in the Regulator’s corporate plan for 2011-2014, released on Thursday, as UK employment-based pensions move away from defined benefit (DB) plans to defined contribution (DC) plans.
The requirement to offer pension savings to all workers will eventually extend to almost all employers – most of whom have never offered pension schemes or have offered it on a limited basis.
“Automatic enrolment and the expansion of DC pensions mean it’s more important than ever that pension products are designed with the best interests of members at heart,” said Michael O’Higgins, chairman of the Pensions Regulator.
The Regulator said educational materials for employers would be released in late May. Some of the issues which employers must address in arranging pension savings for workers include investment strategies suitable for workers of different ages and the costs to be borne by workers in DC pensions.
The Regulator has also set out priorities for legacy DB schemes. These include insuring that the schemes value assets and liabilities correctly; that the funding plans are realistic; and that investment strategies – particularly for schemes where shortfalls are large relative to the size of the company – do not pose excessive risk to the Pension Protection Fund.
The Regulator said it would be taking a hard look at heavy investments in high-risk assets. If the investment proves right, the company can reduce contributions. But if it goes wrong and the company becomes insolvent, losses to the PPF are bigger.