The Pensions Regulator has published research which shows that large DC schemes are demonstrating a far greater degree of compliance with the Regulator’s DC quality features than small and medium sized schemes. While 90% of master trusts had reviewed their governance processes against the quality features, only 59% of medium and 39% of small schemes had done so.
Background
The Regulator issued a code of practice in November 2013 for trust-based DC schemes which set out a number of quality features which the Regulator considers a well-run DC scheme should meet. The quality features are intended to assist trustees in running DC schemes to a high standard and deliver good outcomes for members. There has since been further regulation of DC schemes with the introduction of statutory minimum governance standards in April 2015.
Research results
The main findings of the research were:
- Every master trust and 88% of large schemes (1,000+ members) displayed a good knowledge of the quality features.
- In contrast, 74% of small schemes and 48% of medium schemes had little or no knowledge of the quality features.
- Most schemes demonstrated at least 10 quality features, with master trusts and large schemes being significantly more likely to have at least 24 quality features present.
- The areas where the quality features were least present were trustee knowledge, suitability of investment strategies and measures to ensure adequate administration systems.
- Awareness of the statutory governance standards (from April 2015) was generally high, with master trusts and large schemes showing the highest awareness of the changes.
Regulator’s Press Release
The Regulator issued a press release to accompany the research results, in which Andrew Warwick-Thompson, executive director for DC pension schemes, urged “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”.
Mr Warwick-Thompson also highlighted that the areas where compliance was most poor are now subject to the statutory governance standards and that “where schemes are falling short we expect them to improve or we may take enforcement action against them”.
He also confirmed that the Regulator has begun the process of updating the DC code of practice, to take account of the recent changes in the law, and is discussing with the industry on how the code can be made shorter and simpler to apply.
Comment
The research results – that larger DC schemes lead the way on governance and small schemes need to do much more – are unsurprising. The Regulator was explicit in its press release when it urged employers to choose a master trust or group personal pension plan to meet their auto-enrolment duties and clearly has concerns with governance outside the large schemes. It seems that the Regulator views smaller DC schemes as anachronistic in the new environment and will be looking at how it can assist trustees of “legacy schemes” to move their assets and members to a “more appropriate scheme, where such a move is clearly in the best interests of their members”. Encouraging a shift to better run, better value schemes and making the DC code of practice simpler to apply will be welcome developments.
The Pensions Regulator has published research which shows that large DC schemes are demonstrating a far greater degree of compliance with the Regulator’s DC quality features than small and medium sized schemes. While 90% of master trusts had reviewed their governance processes against the quality features, only 59% of medium and 39% of small schemes had done so.
Background
The Regulator issued a code of practice in November 2013 for trust-based DC schemes which set out a number of quality features which the Regulator considers a well-run DC scheme should meet. The quality features are intended to assist trustees in running DC schemes to a high standard and deliver good outcomes for members. There has since been further regulation of DC schemes with the introduction of statutory minimum governance standards in April 2015.
Research results
The main findings of the research were:
- Every master trust and 88% of large schemes (1,000+ members) displayed a good knowledge of the quality features.
- In contrast, 74% of small schemes and 48% of medium schemes had little or no knowledge of the quality features.
- Most schemes demonstrated at least 10 quality features, with master trusts and large schemes being significantly more likely to have at least 24 quality features present.
- The areas where the quality features were least present were trustee knowledge, suitability of investment strategies and measures to ensure adequate administration systems.
- Awareness of the statutory governance standards (from April 2015) was generally high, with master trusts and large schemes showing the highest awareness of the changes.
Regulator’s Press Release
The Regulator issued a press release to accompany the research results, in which Andrew Warwick-Thompson, executive director for DC pension schemes, urged “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”.
Mr Warwick-Thompson also highlighted that the areas where compliance was most poor are now subject to the statutory governance standards and that “where schemes are falling short we expect them to improve or we may take enforcement action against them”.
He also confirmed that the Regulator has begun the process of updating the DC code of practice, to take account of the recent changes in the law, and is discussing with the industry on how the code can be made shorter and simpler to apply.
Comment
The research results – that larger DC schemes lead the way on governance and small schemes need to do much more – are unsurprising. The Regulator was explicit in its press release when it urged employers to choose a master trust or group personal pension plan to meet their auto-enrolment duties and clearly has concerns with governance outside the large schemes. It seems that the Regulator views smaller DC schemes as anachronistic in the new environment and will be looking at how it can assist trustees of “legacy schemes” to move their assets and members to a “more appropriate scheme, where such a move is clearly in the best interests of their members”. Encouraging a shift to better run, better value schemes and making the DC code of practice simpler to apply will be welcome developments.