Poor levels of governance in pension schemes needs to be addressed.
We see problems across all schemes, but particularly in small DC arrangements.

That’s why we have recently launched The Future of Trusteeship and Governance consultation, a key theme of which considers solutions for reducing the number of poorly run pension schemes.

The evidence is stark. The 2019 annual defined contribution (DC) survey report, shows that just 4% of micro schemes with between two and 11 members, and 1% of small schemes with between 12 and 99 members, are meeting all of the Key Governance Requirements.

The requirements which DC schemes are subject to include trustee boards having the knowledge and understanding which is necessary to run a scheme, process core financial transactions promptly and accurately and provide value for members. Such low numbers of schemes meeting these standards is clearly unacceptable.

We’re not against smaller schemes per se. Where we come across well governed schemes that are providing good value to members and providing good investment options then we don’t have an issue. It’s where we see governance that doesn’t meet our standards – and unfortunately that tends to be more the case with smaller schemes – where we have the challenge.

We previously worked to address this challenge with our 21st Century Trusteeship campaign. It set out to those running pension schemes, and their advisers, what good governance looks like. Over 10 months we covered 10 areas which trustees should focus on to run a scheme well, including managing advisers, proving value for members and ensuring a board has the right skills and experience.

The campaign received good engagement from people who were already trying hard to run schemes well and to provide good governance, but less so among trustees running smaller schemes. They tended to remain disengaged. With smaller schemes in particular we have found, when we have challenged them, trustees believe that what we say doesn’t apply to them because they’re a small scheme, that The Pensions Regulator doesn’t have jurisdiction over them or they don’t have to comply with the legal requirements. The challenge for us is how to tackle that. How do we get those running schemes to engage with us to understand what the requirements are on them?

The Future of Trusteeship and Governance consultation, which is running until September 2019, sets out our proposals.

One is putting an accredited professional trustee on every board. We would expect a professional trustee to understand the requirements which are applicable to the scheme as well as highlight what resources we have provided to help trustees to run a scheme better. They are also more likely to have knowledge or experience of situations which may arise and know when the board needs support from advisers.

It’s clearly not an idea we can implement immediately – there are many schemes and relatively few professional trustees. But as consolidation continues and we look at ways we can both build diversity in pension schemes and encourage more people to become professional trustees, we hope to reach a point in the future where a professional trustee on every board will be achievable. Another suggestion is to implement a minimum standard for trustee knowledge and understanding as well as a requirement for ongoing learning, to ensure they have, and maintain, the knowledge and skills they need to run a scheme.

We have questions about whether sole trustees are able to effectively run a scheme, both in terms of challenging sponsoring employers as well as not having diversity on a board. The consultation invites industry views and we’ve already had representations from professional trustees about how they manage the risks that we’ve identified. It is really useful feedback because we’re trying to build evidence, both good and bad. We’re open to ideas and the paper very much tries to stimulate responses. If other people can think of ways of getting disengaged trustees to engage with us, to improve their levels of governance and ultimately protect savers, then we would like to receive those.

Find our more and respond to the consultation at www.tpr.gov.uk/ trusteeship

David Fairs

Executive Director of Regulatory Policy, Analysis and Advice – TPR

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