Setting the DC standard – master trusts and large schemes lead the way on quality
Tuesday 23 June 2015
New research shows that nine out of ten master trusts and 86% of large defined contribution (DC) pension schemes have reviewed their governance processes against The Pension Regulator’s quality features – but many small and medium schemes need to do more.
The regulator has published its 2015 survey into the presence of the DC quality features amongst trust-based schemes.
The features set out in the regulator’s DC code of practice are designed to help trustees to run their scheme to a high standard, so that they can deliver good outcomes for retirement savers.
Every master trust and 88% of large schemes surveyed displayed a good knowledge of the quality features. In contrast, three quarters of small DC schemes (74%) and half of medium ones (48%) have little or no knowledge of the quality features; while only 59% of medium and 39% of small schemes have been reviewed against the features.
There was a similar pattern relating to the April 2015 introduction of new minimum legislative governance standards, with master trusts and large schemes showing the highest awareness of the changes, which came into effect shortly after the survey was conducted.
Executive director for DC pension schemes Andrew Warwick-Thompson said:
“DC pension schemes have attracted the vast majority of retirement savers who have been automatically enrolled since 2012. So it is more important than ever that such schemes are governed and administered to the highest standards.
“The survey demonstrates that, in the main, large schemes are better placed to exhibit the standards that we believe are necessary for good outcomes for retirement savers. Therefore we urge all small employers preparing for automatic enrolment to choose a high quality large scheme such as a master trust or a group personal pension plan.
“Employers choosing a scheme that has attained independent master trust assurance, for example, can have confidence that it is being operated in line with our DC quality features.”
The survey showed that the areas with greatest scope for improvement related to trustee knowledge, investment strategies and administration systems. The regulator has worked closely with the Government on new legal minimum governance standards for DC schemes relating to these areas, which came into effect in April. Trustees must report in their annual chair’s statement how they have ensured that core financial transactions have been processed promptly and accurately, how they have ensured their default fund offers value for, and is appropriate for, their particular membership, and how they demonstrate sufficient knowledge and understanding to run their scheme.
The regulator will be running communications campaigns to trustees over the next year focused on raising awareness on the new minimum governance standards and areas where the latest survey indicated weaknesses in DC governance.
Mr Warwick-Thompson added:
“It’s disappointing that so many small and medium DC schemes have yet to review their governance processes against our DC quality features.
“A number of areas where schemes have tended to perform the most poorly are now subject to new legal standards. Where schemes are falling short, we expect them to improve or we may take enforcement action against them.
“We will also be working with stakeholders and the Government to understand how best we can assist trustees of legacy schemes which are unable to meet acceptable standards to move their assets and members to a more appropriate scheme, where such a move is clearly in the best interests of their members.”
The regulator has begun the process of updating its DC code of practice (in place since November 2013) to take account of recent changes in the law and is discussing with the industry how we can make the code shorter and simpler to apply.
The regulator is also working with the Government and FCA on the implementation of new pension flexibilities, introduced in April, and will be visiting schemes during the summer to hear what they are doing to adapt to these major changes.
You can watch a video which accompanies this press release using the above media player. To view subtitles select the subtitles icon at the bottom of the video. You can also download a full transcript of the video (PDF, 32kb, 2 pages).
- The lower feature presence for small schemes should be seen in the context of their likelihood of being used for automatic enrolment. Whilst only a third of small DC schemes are either currently used or intended to be used for automatic enrolment, all master trusts, 87% of large schemes and 67% of medium schemes are used / planned to be used for automatic enrolment.
- The analysis work was undertaken to assess the presence of 30 of the 31 features for DC and hybrid schemes, and 29 features for master trust schemes. For DC and hybrid schemes, the feature relating to scheme set-up was not included as the schemes involved were established schemes. Due to the complex nature of DC features relating to flexible contribution structures, and to trustees acting in the best interests of beneficiaries for master trust schemes, these schemes were explored qualitatively rather than quantitatively.
- The survey consisted of telephone interviews with 520 schemes, of which 500 were with single-employer schemes, which in this report includes schemes with associated or non-associated employers (of 12 or more members) and 20 with master trusts. The data was weighted to be representative of the overall population of DC schemes.
- The research was conducted by OMB Research, an independent research agency, with interviews conducted between 7 January and 20 February 2015.The voluntary master trust assurance framework was developed by the Institute of Chartered Accountants of England and Wales (ICAEW) in association with the regulator to support auditors to provide independent assurance reports for the trustees of master trusts.
- 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); to promote, and to improve understanding of the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the employer’s plans for sustainable growth (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).
Matt Adams 01273 662086
David Morley 01273 627269