On 2 July 2019 the Pensions Regulator (TPR) published an industry consultation which can be found here. It seeks the views of the pensions industry on how governance of occupational pension schemes can be improved. The consultation closes on 24 September 2019.
TPR states that its vision for the future of occupational pensions is one where all savers are in schemes that have excellent standards of governance, delivering good value. It is concerned that currently there is a wide range in the standards of governance. It expects its vision to be delivered by ultimately having fewer schemes, and members benefiting from these being more efficiently run with a better decision making process.
TPR carries out various research, including its annual surveys, to understand how schemes are performing against the expectations set out in the codes of practice. Results show that most savers are in schemes that meet the expected standards (generally larger schemes and master trusts) but that the number of small and micro schemes meeting the standards is persistently low. TPR’s research indicates that, for small and micro DC schemes:
- Only a third of trustees engaged with the codes of practice;
- Many chair’s statements provided inadequate assessments of costs and charges;
- Many trustees did not understand the need for value for members assessments.
The areas where TPR are seeking opinions are:
Trustee knowledge and understanding (TKU), skills and ongoing learning
TPR is concerned by gaps in knowledge identified from its research. Trustees have a statutory duty to have a knowledge of pensions and trust law, funding and investment principles, and the documents governing their scheme. Trustees should have a level of knowledge and skills appropriate to perform their roles effectively.
TPR plans to revisit its TKU code of practice and it is consulting on whether:
- a minimum standard of TKU should be defined;
- trustees should be required by law to demonstrate they have attained a standard;
- there should be a minimum level of ongoing learning;
- professional trustees should be subject to higher standards.
TPR is also thinking about how it will communicate with its regulated community in order to motivate and engage with trustees. It is concerned that previous campaigns failed to reach all trustees and that the Trustee toolkit may be too onerous. It is consulting on:
- whether TPR should focus on setting standards and let the industry take the role of educating;
- any other ideas on how TPR can have confidence in trustees’ knowledge and understanding.
Specific proposals on improving governance on boards
TPR highlights the benefits of diversity in the composition of trustee boards, including more effective decision making, better understanding of the challenges savers face, mitigating the risk of knowledge gaps, better mix of skills, etc.
It is consulting on whether:
- schemes should be required to report to TPR on any action to ensure diversity on their boards;
- the industry should help schemes to attract more a diverse set of trustee
TPR believes that many schemes could benefit from having a professional trustee on board. It holds them to a higher standard than lay trustees as the expectation is that they play an important role providing vital knowledge, expertise and experience.
It is concerned however by the number of schemes moving towards having a sole trustee, as TPR believes there may be conflicts of interest, decision making may be less robust, saver representation may be lost and there may not be sufficient breadth of knowledge and skills.
It is consulting on:
- whether it should be mandatory for all boards to engage a professional trustee;
- what experience respondents have of sole trustees and any causes of concern;
- whether governance standards for sole trustees should be strengthened;
- how corporate professional trustees manage conflicts regarding procurement of services;
- how sole professional trustees with preferred suppliers ensure value for money for savers;
- what respondents consider are the pros and cons of various trustee models.
Consolidation of DC pension schemes
TPR is concerned about the standards of governance in smaller schemes. They will give those schemes unable or unwilling to improve the opportunity to wind up and move savers to a well-run alternative. Sometimes there are barriers to winding up schemes such as guarantees; TPR will concentrate on other schemes first, then seek solutions to the barriers.
TPR expects the route most of the winding up schemes will take is to consolidate into a master trust, which it favours due to their high governance standards. It has recently rewritten its winding up guidance to make the process easier, and it suggests that trustees take advice where their scheme includes guarantees.
TPR is just consulting now on DC schemes with guarantees and wants to hear whether:
- any respondents have solutions for winding up such schemes;
- it would be helpful for TPR to provide guidance on this;
- there are any factors that must be considered when winding up schemes with guarantees;
- the costs of winding up are affordable for smaller schemes;
- there are views on loss of trustee oversight if benefits are assigned to individuals.
TPR is collecting feedback in responses to the consultation, and also from some stakeholder events they are holding. It will then publish its response and start more detailed discussions with the DWP.