Defined Contribution Trusteeship
There are certain basic duties that rest on trustees of any type of occupational pension scheme, as described on the Trusteeship page, but the governance of defined contribution (often referred to as DC or money purchase) schemes has recently been subject to increased scrutiny from The Pensions Regulator.
The Regulator has published its Code of Practice number 13 with the express aim of "improving standards and outcomes in defined contribution (DC) schemes." The Code, and the guidance notes that goes with it, focuses on six main areas:
- The trustee board
- Scheme management skills
- Investment governance
- Value for members
- Communicating and reporting
The principal difference between a defined benefit scheme and a DC scheme is where the risk falls.
With a DC scheme all of the investment risk falls on the member. The employer is only obliged to pay contributions at the agreed rate and within the agreed timescale. The trustees of a defined contribution scheme therefore have an even greater responsibility to ensure that the funds in which the contributions are invested are carefully considered, reflect the needs of the members, and that contributions are invested quickly and accurately.
Unfortunately, many DC schemes have been put in place and then all but forgotten. Other than meeting their commitments in respect of the contributions, matters such as the suitability and performance of the default fund, or the process of taking retirement benefits etc, have not been given the attention they deserve.
This benign neglect will no longer wash, however, as the Regulator now requires trustees to publish an annual Chair’s statement setting out how the scheme has met the legislative governance standards. This includes the trustees’ assessment of the value for money provided by the scheme, and how they have carried out this assessment. The Regulator has made it clear that it will fine trustees if they don’t issue a Chair’s statement within seven months of the scheme year end. Fines will also be imposed if the Statement falls short of the Regulator’s exacting expectations.
The key to meeting this obligation is to have a proper understanding of the requirements and to map these to the governance practices of your scheme. One of the trustees must also be nominated as Chair, and this may be time to consider the appointment of a professional independent trustee who can take on this role.
Clearly, any company with a defined contribution occupation pension scheme is going to have to look closely at how the scheme is currently governed. Contact Able Governance to discuss how we can help by being appointed as independent trustee, or to simply assist with your governance statement.
The alternative to putting in the extra time and resources required to run the scheme in accordance with the new standards is to wind it up. Able Governance has many years’ experience in winding up pension schemes. See more details of this service on our pension scheme wind up page.
Able Governance also has experience in dealing with DC master trusts, both as a trustee and as a consultant in a wind up situation. See more information on our master trust trustee page.