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TPR lifts the bonnet on default investment governance

Ref: PN19-24

Issued: Tuesday 11 June 2019

Trustees are being scrutinised by The Pensions Regulator (TPR) in a new drive to ensure they are meeting their legal obligations and properly governing default arrangements.

Trustees of certain defined contribution (DC) and hybrid schemes must regularly review the default strategy and performance of the default arrangement.

TPR has contacted hundreds of trustees and asked them to confirm that they have reviewed their default arrangements. The move is part of TPR’s ongoing work to protect savers and ensure workplace pensions work.

David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at TPR, said: “Our focus is on good outcomes for savers in their retirements. To provide pension savers with the best pot for retirement they need good investment returns as they contribute into a pension through their employment.

“Regularly reviewing a pension scheme’s default arrangement, which the majority of savers contribute into, is vital for trustees to ensure they are investing in the best interests of members.

“We are working to wake up those trustees who, research has shown us, do not engage with the regulator or sometimes do not realise they are not meeting standards of governance or administration that we expect.

“This pilot is among some of the things we are doing as part of a new approach to contact trustees about their legal duties, support them to become compliant where we can and inform them about the alternatives – including winding up their scheme – if they do not or cannot meet the standards which we expect.”

Under law, a pension scheme’s default strategy and the performance of its default arrangement must be reviewed every three years, or when there is a significant change in a scheme’s investment policy or demographic of its membership. Trustees should check the default arrangement is performing as expected and that the default strategy ensures investments are made in savers’ best interests.

More than 95% of members of trust-based DC schemes are saving in a default arrangement.

More than 500 DC schemes with between two and 999 members have been contacted as part of the pilot. Trustees have been asked to review guidance which outlines our expectations. They are then asked to confirm if the strategy and performance of their scheme’s default arrangement have recently been reviewed and remain suitable, by completing a simple online declaration form. Initial indicators show positive trustee engagement with the pilot.

If a scheme’s default strategy has not been recently reviewed, trustees are being taken through simple steps to comply with the law including reviewing the current strategy, taking members’ needs into account as well as the performance of the default arrangement. Trustees struggling to meet the expected standards should consider whether value for savers would be improved by transferring them into an alternative and better run scheme.

Walking trustees through complying with their requirements is a new approach by TPR for engaging with the most hard-to-reach trustees while also driving up standards of governance.

Notes for editors

  1. The DC trust report published by TPR in January 2019 found that 99% of savers in DC schemes with 12 or more members are invested in the scheme’s default strategy.
  2. The legal requirements fall under regulation 2A of the Occupational Pension Schemes (Investment) Regulations 2005.
  3. Trustees of DC and hybrid scheme providing money purchase benefits must review their default strategy every three years, or promptly after a significant change in investment policy or the demographic profile of relevant members. The review should consider how the return on investments in the default arrangement is in line with the trustee board’s aims and objectives for the default arrangement.
  4. The DC code sets out the standards TPR expects trustees to meet when complying with the law, including a section on investment governance.
  5. The pilot was launched following TPR’s thematic review into Value for Members. Good investment governance, including around the default strategy, is a key pillar in ensuring value for members.
  6. 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).

Press contacts

Kimberly Middleton

Media Officer (DC)
01273 349554

Matt Adams

Senior Media and Parliamentary Manager
01273 662086

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