Trustees urged to redouble their efforts on governance standards
Wednesday 20 July 2016
The Pensions Regulator is urging pension trustees to focus on driving up standards of governance and administration in their schemes, in order to increase the likelihood that members receive a good outcome from their retirement savings.
TPR’s latest research report on standards in defined contribution (DC) schemes examines whether DC schemes are fulfilling the standards set out in TPR’s new DC code, due to come into effect later this month. The new code, and accompanying guidance, is part of TPR’s suite of support for pension trustees that includes its Trustee toolkit. TPR is urging trustees to put this support to good use to ensure that schemes meet the requirements set out in legislation.
The research, published today, shows that larger schemes consistently out-perform smaller schemes on all aspects of governance and administration. TPR wants to prevent members in sub-standard schemes from suffering unsatisfactory outcomes and is encouraging debate on how best to address this challenge through its 21st century trustee initiative.
Key findings included:
- A strong correlation between scheme size and the number of legislative governance standards being met. Half of master trusts in the survey met at least 75% of the relevant standards, compared to 25% of large, almost a third of medium, and only a minority of small and micro DC schemes. In terms of members, three quarters of members were in a scheme where at least 75% of the standards were met.
- The boards of master trusts and larger DC schemes were confident that they understood the requirements of the annual chair’s statement, but confidence was lower in small schemes (where 74% were confident) and in micro schemes (59%).
Executive Director of Regulatory Policy Andrew Warwick-Thompson said: “Members have the right to expect that their scheme will pay them the right benefits at the right time. That’s why good governance is so fundamental to pension trustees’ duties. I’m concerned that some trustees aren’t keeping pace with new legislative requirements, or even meeting the basic 'hygiene factors' such as keeping accurate member records or completing a scheme return to TPR.
“But this is not just about smaller schemes, standards need to improve across the board. Well-run master trusts can offer a number of benefits to members. However, I’m concerned that just half of master trusts are meeting 75% of the relevant standards. That’s why we welcome the Government’s proposal to give TPR new powers to regulate these schemes more effectively.”
TPR is considering what more can be done and will be publishing a discussion paper that continues the debate about how best to drive up standards of pensions trusteeship as part of our 21st century trustee initiative, which could include more robust enforcement action.
Mr Warwick Thompson added: “It may be the right time to consider alternative solutions if segments of the trustee landscape cannot or will not improve.
“We are particularly interested in exploring with our stakeholders the potential benefits to members of encouraging the consolidation of sub-standard schemes of all benefit types and sizes.”
- The DC trust-based pension schemes report summarises the results from the March – April 2016 research survey carried out by OMB Research, an independent market research agency, on behalf of TPR.
- The main objective of the research was to identify the type and prevalence of challenges which DC and hybrid schemes faced in relation to the legislative governance standards and the standards of conduct and practice in TPR’s new DC code of practice, due to come into force in July 2016.
- OMB Research, an independent market research agency, was commissioned to conduct this research on TPR’s behalf. The survey fieldwork took place between January and March 2016.
- TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to 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 sustainable growth of an employer (in relation to the exercise of TPR’s functions under Part 3 of the Pensions Act 2004 only).
Tim Marks 01273 662092