28 October 2014 - Post by:Helen Powell
This time last year, if a Government document had landed on my desk announcing new governance standards for pension scheme trustees including assessing value for money, ensuring prompt and accurate processing of core financial contributions and preparing a new default fund statement of investment principles, that would have been quite a big deal. In the context of everything else that’s going on at the moment, it’s yet another item on the (already full) trustee agenda. It can be tricky for schemes to get a fix on what the real priorities are.
Having had some time to digest the governance standards, I think there are reasons to be cheerful. For a start, the main elements of the governance measures overlap to a great extent with parts of the DC Code, so good planning means that a single task can hit multiple targets. The regulations carry separate reporting requirements, and for the moment there are two sets of overlapping standards to work with – but the DC Code will be revised in due course and many schemes have made good progress with working out what actions they need to take to comply, so the additional burden isn’t as great as it first appears.
The key point, though, is timing, for two reasons:
First, your chair of trustees must be able to make a statement on compliance in the annual report – if your scheme reports to 31 May, say, then the latest deadline for making the statement will be 31 December 2015, though some elements of the statement will relate only to the part of the scheme year falling after 6 April 2015. Compared to the voluntary ‘comply or explain’ statement in relation to the Code, that sets a much tighter timetable to bring scheme processes up to scratch in the areas mentioned above, together with a higher standard for compliance. The statement must also include an assessment of trustee knowledge and understanding – schemes that have been waiting for a quiet period to catch up on trustee training need to be aware that a slow day isn’t coming any time soon. Schemes need to plan now to make sure all trustees are fully up to speed and that trustee training records will support the chair’s statement.
Secondly, we all knew the default fund charge cap was on the way, but publication of the draft regulations last week will focus attention on provider readiness for April 2015. Not only do trustees need to sort out what default structures they need from 6 April 2015 from a DC flexibility perspective, but, for qualifying schemes, they need to know that default fund charges will be within the 0.75% cap. Having a compliant default arrangement in place by 6 April 2015 will require communications with members, and possible transfers, in the three months beforehand. With many providers still in the process of developing their proposals for default arrangements from April 2015, this is becoming more of a concern. It’s not clear whether providers and investment consultants will be ready to present settled proposals and options for new default arrangements to trustees at their December meetings, and trustees have some difficult decisions to make about what they think the practical impact of the changes is likely to be for members. Trustees need to be proactive in pushing for solutions; unfortunately, due to the short time available, it may not be possible for all schemes to move smoothly to a cap-compliant, flexible access-ready default in time for April 2015.
Helen Powell is a PSL Counsel at Allen & Overy LLP