Things that should scare the chair of a DC scheme: number 1

Topic:

Hot topic

Date published:

Monday, 23 November 2015

Author:

Mark Homer

The increasing defined contribution (DC) governance burden

DC pension schemes are sharply in focus. The burden of regulation on them, including the associated governance, is increasing.

Governance standards apply to all occupational pension schemes holding money purchase benefits (subject to minor exceptions) and are overseen by The Pensions Regulator. One crucial new regulation is the requirement for the Chair of trustees (to be identified on the Scheme Return) to sign off an annual statement describing among other matters the default fund, level of charges and transactions costs and how the trustees have met the knowledge and understanding requirements.

Contract-based workplace pension schemes do not escape the forensic focus - providers must establish an independent governance committee (IGC) or governance advisory arrangement (GAA), and employers are encouraged to engage in appropriate governance voluntarily.

New regulations that apply an annual cap of 0.75% to default funds used by DC pension arrangements may pose challenges for some schemes. A full review of the existing investment options, design and charging structure is urgently needed to ensure compliance.

Scary thought

Completing an annual governance statement is not a simple task and the process may highlight considerable gaps in trustee knowledge and cause issues with members.

A few points for a DC chair to consider:

• Can your adviser provide sufficient support and advice to ensure compliance? Not all can.
• Are you comfortable you (a) understand and (b) have the time to review your DC scheme(s) against the governance standards? An annual statement to members needs to be made by the DC Chair in April 2016 so time is short.
• When you have completed your review, do you have the knowledge and experience needed to fully understand the outcome and act on the findings?
• Is your scheme geared up to deal with any issues or non-compliance identified in your DC governance statement? Remember they may result in member queries or, at worst, dissatisfaction, which will need addressing appropriate.

This is the first scary thought in a series that will run up to our Scary DC Breakfast roundtable in January 2016. If you are a DC scheme chair or trustee, pensions manager, finance director or other employer representative and want to learn more about these issues, why not join us at the roundtable?

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