TPR to follow up code with thematic reviews in 2014

The Pensions Regulator will follow up today’s launch of its new code of practice for trustees with thematic reviews of the extent to which trust-based DC schemes are complying.

From today trustees of trust-based DC schemes must be able to demonstrate how they comply with the 31 quality features set out by TPR’s new code.

TPR says it will take enforcement action to address breaches in the underlying law identified by the thematic reviews, which will take place next year, and will challenge those failing to match industry good practice.

The regulator says it is concerned at opaque costs and charges deducted from a member’s fund. It wants to help trustees capture the total cost and benefits of scheme membership in a way that will demonstrate its value for money for members.

TPR has published a good practice guidance that includes practical material to help trustees to assess their scheme in comparison with others in the market, get better deals or switch to better options. The regulator says the code is an initial step and intends to have further discussions with the pensions sector next year on how schemes can capture and report their value for money information.

Next year the regulator also intends to publish a template ‘comply or explain’ governance statement that DC trustees can use to inform scheme members, the employer and the regulator whether they meet the DC quality features or, where the features are not fully present, how their approach is in members’ interests.

TPR executive director for DC, governance and administration Andrew Warwick-Thompson, says: “From today, we expect DC trustees to assess their scheme against the standards set out in the DC code. Our aim is to protect retirement savers and to ensure their money is invested in good quality schemes that are well run in the members’ best interests. Schemes that fall short of these standards should expect some difficult questions, and they may incur enforcement action in order to rectify breaches in pensions law.

“We also urge professional advisers to familiarise themselves with the details of the code and guidance, as they have a key role to play in helping trustees review their scheme and make improvements to its quality where necessary.”

Sackers partner Helen Ball says: “The DC code is a big step for the pensions industry. Now that the DC code is in force, trustees will need to take swift action to address their scheme’s ability to comply fully with the Code.

“The results of our poll at the NAPF Annual Conference and on the PMI website show that 25% of schemes consider that they are not compliant with the Code – those schemes will need to take action now.   

“We expect most well run schemes will meet the majority of these requirements but expect that, with a constantly changing regulatory landscape, some will have a few gaps to address. For those that do not meet the required standards the Pensions Regulator has a number of enforcement powers, from issuing improvement notices to civil penalties of up to £50,000.”

Towers Watson senior consultant Nick Cook says: “The code and guidance is an important step in addressing the governance issue but it is important that trustees do not view it as a ‘tick the 31 boxes and move on to something else’ exercise. The greatest value – and ultimately best member outcomes – will be achieved where this new guidance is incorporated into an ongoing programme of assessment, alignment of the DC and corporate strategy with scheme-specific objectives and success factors, and then periodic reviews to ensure the desired progress is being met within agreed timescales. 

“Notwithstanding the fact that clearly legal and compliance duties must be adhered to immediately, arguably it is the practices above and beyond the core legal duties that bring the greatest value, return on investment and, ultimately, improvement in member outcomes. Consequently, DC schemes may take a while to develop to their full potential, although some are already higher up the ladder than others.  The code and guidance published today acts as a good catalyst to facilitate this.”