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TPR sets out action to tackle gaps in scheme governance

Ref: PN17-53
Thursday 7 September 2017

Governance and administration across defined contribution (DC) schemes has improved while defined benefit (DB) schemes are showing better understanding of The Pensions Regulator's (TPR) code of practice, new surveys show.

Two surveys commissioned by TPR to gauge how schemes are meeting expectations, and to explore the barriers they face, reveal the majority of members are in relatively well-run schemes.

However, higher standards of governance, and compliance with the principles of TPR’s codes, tend to be a feature of larger better managed schemes.

TPR has today published a response to the survey findings. It sets out how we will tackle poor standards of stewardship and risks around sub-scale schemes by making our expectations of trustees clearer and enforcing against non-compliance.

View the DC survey and response and the DB survey and response.

For individual small and medium schemes the surveys are disappointing and highlight major gaps in the standards expected by TPR including that:

  • they tend to display poorer governance standards, for instance they place less focus on training arrangements, regular board assessments, effective internal controls and oversight of third parties
  • many small and medium DC schemes, (including those used for automatic enrolment) are not meeting standards around administration (eg ensuring prompt and accurate transactions), investments (setting appropriate investment strategy for the default fund) and value for members (assessing quality of services provided to members)
  • significant issues also remain among DB schemes, in particular around integrated risk management and fair treatment of the scheme    

Anthony Raymond, Acting Executive Director for Regulatory Policy, said: “The evidence we are publishing today illustrates that while some trustees are doing a good job, many trustee boards have failed to act on our codes and guidance to meet basic standards of good governance. Members and sponsoring employers should not suffer because of apathy and we will not stand by and let it continue.

“Our forthcoming 21st Century Trusteeship campaign will support trustee boards to reach and maintain standards, focusing on the fundamentals of good governance. The campaign will launch later this autumn and we will be communicating extensively with trustees in the months ahead to set a clear benchmark for anyone working as a trustee.

“As part of our commitment to be a clearer, quicker and tougher regulator, we will be stepping up our regulatory action in cases where trustee boards fail to meet minimum legal standards, and we will publish the details of that action.

“We will also continue to examine whether sub-standard schemes should be consolidated with larger, well-run schemes.”

The survey response highlights that TPR will:

  • Support small schemes by being clearer and more directive, providing tools and showing trustees how they can take action to ensure they are getting the basics right, such as clarity of roles and responsibilities and effective oversight of third parties. TPR’s forthcoming 21st Century Trusteeship – raising the standards of governance campaign is a key element of this work and will launch later in September focusing on good governance.
  • Take targeted enforcement action against those who are not meeting required standards. For DB schemes, this will also mean ensuring trustees are managing key risks in an integrated way and take necessary action to secure the fair treatment of their scheme.
  • Maintain an open discussion with government partners and industry on how scheme consolidation can play a part in driving up standards amongst small schemes which consistently fail to meet standards.

Editor's notes

Key findings from the surveys include:

DC pension schemes

  • The majority of DC members are in schemes that meet key governance requirements, with a small but statistically significant increase evident from the 2016 survey results.
  • Around 90% of members are in schemes that meet the requirement for trustee boards to possess or have access to the knowledge and competencies necessary to properly run their scheme.
  • The poorest performing area was the prompt and accurate processing of core financial transactions, for example the investment of contributions or the transfer of members’ funds to a different arrangement - only 54% of members are in schemes meeting this requirement.
  • Only a third of schemes research member preferences and needs and take this into account when assessing value for members.

DB pension schemes

  • One third of trustees who rated their board’s performance as 'very good' were not undertaking the five actions outlined in TPR’s DB code to manage risk.
  • Around a quarter of trustees asserted very good board performance but didn’t know if they carried out any of the four steps outlined in the DB guide to ensure the scheme is treated fairly by its sponsoring employer.
  • Only two thirds of trustees said their scheme had a policy for assessing new trustee fitness and six out of ten reported their trustee board carried out regular board performance evaluation.

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 the regulator’s functions under Part 3 of the Pensions Act 2004 only).

Press contacts

David Morley 01273 662091

Matt Adams 01273 662086

pressoffice@thepensionsregulator.gov.uk

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