Pension scheme trustees and advisers are being urged to have their say on new guidance to support tougher rules on investment governance.
From December, trustees will be legally required to run competitive tender processes to recruit fiduciary managers if their schemes use such arrangements for at least 20% of their funds. This requirement will also apply to existing arrangements that have not been made as a result of competitive tender.
For the first time, trustees will also be required to set strategic objectives for those providing them with investment advice, so that they can measure whether the service is good value for money.
Separately, fiduciary managers and investment consultants will also have new duties placed on them around reporting charges, fees and performance to make it easier for trustees to compare providers effectively.
The changes follow an investigation by the Competition and Markets Authority (CMA) into the investment consultancy market which found weaknesses, including trustees entering into uncompetitive terms or failing to switch to potentially better providers because they struggled to compare fees and performance.
The Pensions Regulator (TPR) is now asking for the industry’s views on guidance it has drafted to support trustees to understand the new requirements for them.
David Fairs, TPR’s Executive Director for Regulatory Policy, Analysis and Advice, said:
“Investment consultants and fiduciary managers can play an important role in helping trustees manage scheme investments effectively to get the best possible outcomes for savers.
“The CMA report found that when trustees tendered for services and reviewed the performance of their investment advisers, they were more likely to receive a better-quality service and better value for money.
“This is the chance for trustees and other parts of the industry to have their say on the guidance we have drafted to support the new rules.”
The consultation runs until midday on 11 September and involves guidance for trustees on how to choose an investment model, how to set objectives for those providing investment advice to trustees and how to run competitive tenders before appointing fiduciary management and investment consultancy services.
Notes to editors
- You can view the consultation document and guides at draft guidance consultation (in response to CMA recommendation).
- The CMA published its Investment Consultancy Market Investigation report in December 2018, which found there were problems with the way in which the fiduciary management and investment consultancy market worked. It found that trustees spent little time choosing and then monitoring their investment consultants and fiduciary managers, and struggled to assess whether those doing that job were providing good value for money or should be replaced.
- An order it made in June 2019 places new duties on trustees from 10 December 2019. The duties require trustees to set strategic objectives for providers of investment consultancy services and to carry out competitive tenders for fiduciary management and investment consultancy services.
- To support the new requirements, the CMA recommended that TPR provide enhanced guidance to trustees on engaging with investment consultants and fiduciary managers in order to support pension scheme trustees to gain most benefit from their package of remedies.
- The order also included several new requirements on fiduciary managers and investment consultants that are designed to improve the quality and accessibility of information on charges, fees and performance from fiduciary managers and investment consultants with the aim of making it easier for trustees to compare providers and assess value for money.
- The CMA recommended that the Department for Work and Pensions (DWP) legislate to bring the requirements of the order into pensions legislation. A consultation exercise on amendments to regulations is currently running.
- 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).