DC Schemes – Governance and how the Trustee Chair copes with interesting times

Everyone (hopefully) likes to be busy.  At the moment, anyone connected with pensions, and especially trustees of Defined Contribution (DC) Schemes, is finding being busy very easy indeed.  If it is not getting up to speed with the new flexibilities brought in through pension freedoms then it is gearing up for what changes might take place after the 7 May General Election, regardless of which party (or parties) are in power.

Busy trustees might be forgiven for missing the governance changes that came into force for DC Schemes on 6 April 2015 in all this “noise”.  The changes are, however, legally required so forgiveness might not be afforded and trustees might be subject to fines or action!  In this blog I am going to concentrate on the requirements to have a Trustee Chair and the new annual governance statement.

Trustee Chair to sign off annual governance statement on DC features
First off you need to make sure you have a chair appointed to your Trustee Board.

The chair has a new responsibility from 6 April 2015 which is to provide an annual governance statement on DC features.  This will go into the annual report and accounts and will cover:

  • The latest statement of investment principles (SIP) governing decisions about investments in the default arrangement.
  • Any review of the default strategy or performance of funds underlying the default strategy you have undertaken during the scheme year and any changes resulting from that review. If you haven’t undertaken a review in the scheme year, the date the last one was undertaken should be noted
  • How the requirement to process core financial transactions promptly and accurately has been met during the scheme year.
  • The level of charges and transaction costs applicable to the default arrangement during the scheme year or, if there are more than one default arrangement, the range of levels.
  • The range of the levels of charges and transaction costs for other funds in which members’ assets are invested during the scheme year.
  • Information on transaction costs which the trustees have not been able to obtain and an explanation of what steps are being taken to get that information in future.
  • The extent to which the charges and transaction costs represent good value for members.
  • An explanation of how the Trustee Knowledge and Understanding requirements have been met during the scheme year. This should set out how the combined knowledge and understanding of the trustees, together with the advice which is available to them, enables them properly to exercise their roles as trustees of the scheme.

Although this comes in from 6 April 2015, if your scheme year ends in the 3 months immediately following that date you don’t have to meet this requirement for the report for that year – there is not enough time to provide a meaningful statement.  You will still have to include a reduced statement which will cover

  • The SIP for the default arrangement and when it was last reviewed.
  • How the trustees’ combined knowledge and understanding, together with the advice available to them, enables them to properly exercise their functions as trustees

You do have to cover the period since 6 April 2015 in your next statement in the report and accounts. You have 7 months from the end of your scheme year to issue this statement.

Trustees who do not comply with the new requirements will be fined between £500 and £2,000. You will have to declare that you have produced the statement as part of your scheme return.

The Pensions Regulator has information about the changes on its website and has also put together a  Guide for Trustees.  Click on the links to read these. Note also that the new legal requirements introduce an element of overlap with the DC Code of Practice and associated Regulatory Guidance. I understand that the Regulator will be updating the Code in due course.

It’s an (alleged) old Chinese curse that says “May you live in Interesting Times”.  With the right knowledge, information and planning, these interesting times may not be so cursed.

Mike Crowe
Mike Crowe

Mike currently works as a Trustee Representative supporting the firm with new appointments and on-going trustee appointments made by the Pensions Regulator.