Regulatory intervention report issued under section 89 of the Pensions Act 2004 in relation to the Moore Stephens Pensions Master Trust and autoenrolment.co.uk.
Published: September 2019
Summary
The First-Tier Tribunal agreed that penalties should be imposed in two separate cases after trustees appealed the chair’s statement fines we had issued during 2018. The relevant chair statements were the first ones due under the new regime and had been prepared before our more detailed guidance published in November 2017. In one of the cases, it reduced the amount of the penalty from the maximum to the minimum fine.
The trustees of the Moore Stephens Pensions Master Trust and autoenrolment.co.uk had failed to include the required information in their annual chair’s statement, so we issued them both with the maximum statutory fine of £2,000. After we reviewed their cases, both sets of trustees referred our decisions to the First-Tier Tribunal.
In the Moore Stephens case, the tribunal confirmed one of three areas which we considered to be non-compliant. The judge commented that as the chair’s statement in question was the first one due under the new regime and was prepared before our more detailed guidance was published in November 2017, he considered the non-compliance to be a “minor transgression” and reduced the penalty to £500 for the scheme year end 31 March 2017.
In the autoenrolment.co.uk case, the judge rejected the challenge and confirmed the fine of £2,000 for the scheme year end 30 June 2016.
However, the judges deciding both cases agreed that the chair’s statements had not complied with the law, and that in those circumstances a penalty was mandatory.
Background
Trustees of most defined contribution (DC) workplace pension schemes are required by law to prepare an annual governance statement (known as a chair’s statement), signed by the chair of the trustees, within seven months of the end of each scheme year. These statements are an essential way to show pension savers that their scheme is being well-governed by its trustees.
Failing to prepare a chair’s statement which meets the legal requirements incurs a mandatory fine.
Regulatory action
We reviewed the chair’s statements of both schemes during the course of our engagement with a number of master trusts and found them to be non-compliant. We considered the Moore Stephens statement to be in breach of three of the seven key requirements.
These were:
- failing to encourage members to express their views to trustees
- insufficient trustee knowledge and understanding
- failing to process core financial transactions promptly and accurately
We considered the chair’s statement from autoenrolment.co.uk to be deficient in five areas:
- failing to include the latest default statement of investment principles
- failing to provide the date of the last review of the default statement of investment principles
- failing to adequately describe how trustee knowledge and understanding was met during the scheme year
- failing to include information about how the requirement for the majority of trustees and the chair to be non-affiliated were met
- failing to provide details of how members were encouraged to share their views and how they were represented
In each case the schemes were governed by professional trustees and we therefore considered this to justify the maximum statutory penalty of £2,000. Both sets of trustees requested an independent review of the penalty notice and then exercised their right to refer the matter to the General Regulatory Chamber of the First-Tier Tribunal for reconsideration.
Chair’s statement requirements
Trustees must demonstrate how they have met the requirements for:
- attaching the default statement of investment principles
- describing any review of the default strategy and the performance of the default arrangement, and explaining any changes resulting from the review
- processing core financial transactions promptly and accurately
- calculating member-borne charges and transaction costs
- explaining how these costs represent good value for members
- trustee knowledge and understanding
- (for master trusts only) non-affiliation and member feedback
Outcome
In the Moore Stephens case, First-Tier Tribunal judge David Thomas found that the chair’s statement for 2016-17 did not satisfy the requirements in one aspect (encouraging members to express their views to trustees) but was compliant in the other two aspects (trustee knowledge and understanding and core financial transactions).
The judge took into consideration the circumstances of the breach and he decided that it was appropriate to impose the minimum statutory penalty of £500. The judge considered the non-compliance to be a “minor transgression” and took into account that the chair’s statement in question was the first one prepared under the new regime and before our more detailed guidance had been published in November 2017. Nevertheless a penalty within the permissible range (£500-£2,000) was mandatory.
In the autoenrolment.co.uk case, First-Tier Tribunal judge David Hunter QC ruled that the chair’s statement for 2015-16 was deficient in five respects and upheld the penalty we imposed. Judge Hunter said the requirement was that trustees should not simply prepare an annual governance statement, but “prepare a statement containing a considerable amount of clearly specified and detailed information”.
Our approach
It is clear from the judgements that a chair’s statement must contain sufficient detail in respect of each of the statutory requirements for trustees to demonstrate compliance with the law. We continue to expect trustees to prepare chair’s statements that satisfy all of the statutory requirements and will take action on non-compliance.
Where we request submission of a chair’s statement (whether as part of the master trust authorisation process or otherwise), we will continue to scrutinise its contents carefully to ensure savers are given relevant and timely information about their pension savings which the legislation requires, and the court has now confirmed.
Where we issue fines against trustees for failing to produce a chair’s statement or for producing one which is non-compliant, we will name the schemes on our website.
The regulator’s consideration and approach to individual cases is informed by the specific circumstances presented by a case, not all of which are referred to or set out in this summary report.
This summary report must be read in conjunction with the relevant legislation. It does not provide a definitive interpretation of the law. The exercise of the regulator’s powers in any particular case will depend upon the relevant facts and the outcome set out in this report may not be appropriate in other cases. This statement should not be read as limiting the regulator’s discretion in any particular case to take such action as is appropriate. Employers and other parties should, where appropriate, seek legal advice on the facts of their particular case.