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Regulator clarifies the role of DC trustees

Ref: PN11-23
Thursday 13 October 2011

The Pensions Regulator has published a statement - The role of trustees in DC schemes (PDF) - for trustees to clarify the key differences between DB and DC schemes, and the behaviours that DC trustees should demonstrate.

The regulator’s analysis of its scheme governance survey continues to highlight patterns of poor governance standards in DC schemes. Given the predicted increase in the number of employees actively participating in qualifying DC schemes as a result of automatic enrolment, it is important that trustees act upon this statement to ensure that they are able to carry out their duties to the highest possible standards.

Although many trustees have experience with DB schemes, it is clear that some lack understanding of how to run DC arrangements. Governance functions may be similar in both types of schemes but the way that underlying risks need to be managed is often very different - so it is important that these differences are realised and steps are taken to improve knowledge and understanding.

The regulator’s executive director for DC, governance and administration June Mulroy said:

“In DC schemes, it is members that bear the risk. If a scheme is poorly run it can directly impact the value of a member’s pension pot. Therefore it is vital that trustees have a firm grasp of the key issues for DC schemes that will assist members in receiving a good outcome from their savings - such as investment choices, costs and charges and decisions around converting pension pots into a retirement income.”

In addition to this statement, in the coming weeks the regulator will also be assisting trustees to manage the complexities and risks that can arise with ‘hybrid schemes’ with DB and DC elements, as well as publishing a statement on our expectations of a good DC scheme.

Editor's notes

  1. The Pensions Regulator is the regulator of work-based pension schemes in the UK. We have objectives to protect members’ benefits, reduce the risk of calls on the Pension Protection Fund (PPF), and from 2012 will have the additional objective of maximising employers’ compliance with their duty to automatically enrol staff into a qualifying pension scheme with a minimum contribution rate. Our approach is risk-based focusing on education and enablement, with enforcement where appropriate. Whilst our priority is to ensure that trustees, employers and intermediaries are well-placed to manage schemes effectively, the regulator can exercise powers where it feels it is reasonable and proportionate to do so. These powers include the ability to:
    • collect information about pension schemes: through scheme returns, under the scheme funding regime and as well as statutory (including whistleblowing) reports;
    • issue notices requiring actions to tackle non-compliance, prohibit trustees who are judged not fit and proper to carry out their duties or appoint independent trustees;
    • direct pension schemes as to how to calculate their liabilities and the contributions required;
    • issue a contribution notice (CN) where there is an attempt to avoid liabilities, or a financial support direction (FSD) where the employer is a service company or insufficiently resourced; and
    • from 2012, issue warnings and penalties to employers for failure to enrol staff into a qualifying pension scheme.

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