I’m a trustee of a DC scheme – should I be worried?

We think you probably should, or at least until you can satisfy yourself the governance of your trust based defined contribution (DC) scheme is in order.

The Pensions Regulator has recently published reports on fines imposed on trustees of a number of DC schemes for failing to meet the requirement to produce a chair’s statement on the new statutory governance requirements introduced for DC schemes. These have been highly publicised by the pension press.

Fines have been levied of between £500 and £2,000, even after trustees promptly complied with their legal duty to notify the Regulator of the breach and quickly took action to prepare the required statement.

There are bound to be further cases coming to light in months ahead. A £2,000 fine might seem excessive, but there seems to be little flexibility for the Regulator to avoid levying a fine at some level. It doesn’t matter that the chair is responsible for producing the report – all trustees will be equally liable for any fine.

What are the new requirements?

In April 2015 new statutory governance requirements were introduced in relation to occupational pension schemes providing money purchase benefits. One of these is that trustees must prepare an annual statement regarding governance signed by their chair. The deadline for producing the statement means this is an issue trustees are facing for the very first time here and now.

First – the good news (for some)

There are, thankfully, exceptions. For example: schemes where the only money purchase benefits provided relate to additional voluntary contributions (AVCs); certain small schemes; executive pension schemes; and certain public service schemes.

But now the difficult part – what are the key areas you need to cover?

• Your default investment strategy: How has this been designed? How does it fit together and work in the best interests of members who cannot or do not wish to make their own choices?
• Financial transactions: How do you make sure these are processed promptly and accurately?
• Charges and transaction costs: What are the costs? Will they help deliver value for members? Are they excessive and need to be challenged and renegotiated?
• Trustee knowledge and understanding (TKU): How does the combined knowledge of the trustees allow them to properly exercise their functions?

These are complex and challenging areas and all need to be covered in the chair’s statement. Pension trustees are not alone here though. With a good scheme adviser in place they should be able to relax if they follow best advice…

…but how do trustees know what best advice looks like and whether implementing it will indeed deliver good member outcomes?

If you’d like some help to produce your chair’s statement or in assessing your pension scheme against the Pensions Regulator’s new code of practice for DC schemes, contact me today.

 

 

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