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DC governance: purple patch

The Pensions Regulator (tPR) is focusing on the regulation of DC benefits. In 2013, tPR introduced 31 key quality features in its DC Code of Practice. Colour coding of each feature is used, with purple demonstrating best practice. 

A recent survey by tPR found that small schemes (12 – 99 members) only meet an average of 16 quality features, with large schemes meeting only 24. Lack of compliance can be a failure to meet existing trustee legal requirements.    

In addition, from 6 April 2015 new legal governance standards for DC schemes came into force. These complement the provisions of the DC code. They include a requirement to appoint a chair of trustees on tPR's Exchange and submit an annual chair's statement on DC governance.

Lack of awareness 

tPR's survey of 500 single-employer schemes and 20 master trusts reviewed the extent of the presence of the features in DC trust-based schemes. Awareness of and compliance with the features was much lower in small schemes (12-99 members) when compared to medium schemes (100-999 members), large schemes (1,000+ members) and master trusts.

The survey found that:

  • all master trusts and other large schemes were aware of the features, as were 94% of medium schemes. However, amongst small schemes, awareness fell to 78%; and
  • 75% of master trusts and other large schemes met at least 24 features, but for small schemes the mean number of features met fell to 16.

Although awareness of the new legal governance standards was high, knowledge of the standards was variable. 82% of large schemes surveyed knew either 'a lot' or 'quite a lot' about them, this fell to 42% for medium schemes and only 22% for small schemes. tPR will shortly be contacting trustees to remind them of their duties.  

Where and why should schemes improve?

Of the 31 features, improvement was required on:

  • trustee knowledge and competence.
  • the suitability of investment strategies.
  • ensuring that administration systems can cope with scale and are backed by adequate business/disaster recovery arrangements.

Almost all of the features are underpinned by existing statutory requirements, for example trustee knowledge and understanding under the Pensions Act 2004. Therefore a failure to comply may also mean that trustees are failing to comply with their statutory duties more generally. 

Trustees should also ensure that they are aware of the new legal governance requirements and implement these in the required timeframes. Some of these vary according to a scheme's actuarial valuation cycle but others are effective now. 

Should trustees fail to comply with their legal requirements, in respect of both the legal governance requirements and their other legal duties, tPR can take a range of enforcement actions from advice letters, warning letters, statutory compliance notices and monetary penalties, to prosecution.

Helping you turn your scheme purple

Governance standards will become even more regulated in the future. It is difficult to bring all the requirements together, when running a DC scheme. We can help you:

  • understand the DC code, including tPR’s guidance and ensure best practice in DC governance;
  • carry out a gap analysis of scheme procedures, documentation, capabilities and effectiveness in order to comply with the features;
  • demonstrate compliance using our award winning scheme extranet; and
  • develop an agreed business plan and training, to help deliver scheme specific improvements and training.

If you would like further information on any of the above, please do not hesitate to get in touch with governance specialist Lizzie Stone on +44 (0)333 006 0473 or lizzie.stone@TLTsolicitors.com.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions.

by Lizzie Stone

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