Master trusts lead the way on quality

Master trusts lead the way on quality

New research shows that nine out of ten master trusts and 86% of large defined contribution (DC) pension schemes have reviewed their governance processes against The Pension Regulator’s quality features – but many small and medium schemes need to do more.

The regulator has published its 2015 survey into the presence of the DC quality features amongst trust-based schemes.

The features set out in the regulator’s DC code of practice are designed to help trustees to run their scheme to a high standard, so that they can deliver good outcomes for retirement savers.

Every master trust and 88% of large schemes surveyed displayed a good knowledge of the quality features. In contrast, three quarters of small DC schemes (74%) and half of medium ones (48%) have little or no knowledge of the quality features; while only 59% of medium and 39% of small schemes have been reviewed against the features.

There was a similar pattern relating to the April 2015 introduction of new minimum legislative governance standards, with master trusts and large schemes showing the highest awareness of the changes, which came into effect shortly after the survey was conducted.

Executive director for DC pension schemes Andrew Warwick-Thompson said:

“DC pension schemes have attracted the vast majority of retirement savers who have been automatically enrolled since 2012. So it is more important than ever that such schemes are governed and administered to the highest standards.

“The survey demonstrates that, in the main, large schemes are better placed to exhibit the standards that we believe are necessary for good outcomes for retirement savers. Therefore we urge all small employers preparing for automatic enrolment to choose a high quality large scheme such as a master trust or a group personal pension plan.

“Employers choosing a scheme that has attained independent master trust assurance, for example, can have confidence that it is being operated in line with our DC quality features.”

The survey showed that the areas with greatest scope for improvement related to trustee knowledge, investment strategies and administration systems. The regulator has worked closely with the Government on new legal minimum governance standards for DC schemes relating to these areas, which came into effect in April. Trustees must report in their annual chair’s statement how they have ensured that core financial transactions have been processed promptly and accurately, how they have ensured their default fund offers value for, and is appropriate for, their particular membership, and how they demonstrate sufficient knowledge and understanding to run their scheme.

The regulator will be running communications campaigns to trustees over the next year focused on raising awareness on the new minimum governance standards and areas where the latest survey indicated weaknesses in DC governance.

Mr Warwick-Thompson added:

“It’s disappointing that so many small and medium DC schemes have yet to review their governance processes against our DC quality features.

“A number of areas where schemes have tended to perform the most poorly are now subject to new legal standards. Where schemes are falling short, we expect them to improve or we may take enforcement action against them.

“We will also be working with stakeholders and the Government to understand how best we can assist trustees of legacy schemes which are unable to meet acceptable standards to move their assets and members to a more appropriate scheme, where such a move is clearly in the best interests of their members.”

The regulator has begun the process of updating its DC code of practice (in place since November 2013) to take account of recent changes in the law and is discussing with the industry how we can make the code shorter and simpler to apply.

The regulator is also working with the Government and FCA on the implementation of new pension flexibilities, introduced in April, and will be visiting schemes during the summer to hear what they are doing to adapt to these major changes.

Categories: News, UK Pensions

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