Many smaller defined contribution (DC) pension schemes are falling behind in meeting new legal criteria, so trustees should make sure they are prepared, a new survey suggests.
The Pension Regulator’s (TPR) annual survey of DC pension plans was conducted from October to December of last year and found that the majority of schemes with fewer than 100 members’ trustees are unaware of their obligations in relation to new, more thorough value for members assessments.
Only a small number of smaller schemes devote time or money to climate-related issues, according to the poll, and 43 per cent of micro and 31 per cent of small schemes confessed they were not familiar with or had never used TPR’s codes of practice.
DC trustees are required by regulations to assess their scheme’s fees, levies, and investment results against those of three other larger plans if their asset under management is less than £100m. In accordance with seven important measures, they must also evaluate the governance and management of their plan. After December 31, 2021, schemes are required to do this more thorough value for members assessment at each scheme year-end.
The results of this evaluation must be included in the annual chair’s statement and submitted with the scheme return to TPR. Two-thirds of plans with less than £100m in assets under administration, according to TPR’s study, were not aware of the new rules.
Few had compared net investment returns or expenses and charges with three other schemes, and just over half or 51 per cent of those who were aware of the regulations had evaluated the scheme’s governance and management, 17 per cent and 10 per cent respectively.
TPR executive director regulatory policy, analysis and advice David Fairs says: “No saver deserves to be left stuck in a small, poorly governed scheme which doesn’t offer the same value as a larger one. Sadly, our survey shows this remains the reality for some savers, which strengthens our belief that consolidation is the answer for many small schemes. Where trustees of smaller schemes can’t show that they provide this value, we expect them to either wind up or take prompt action to make improvements.”
In order to address the risks and opportunities associated with climate change, trustees of specific schemes were subject to new criteria starting in October of last year. The new regulations first applied to authorised schemes and those with $5bn or more in related assets. From October 1, 2022, it will also apply to schemes having relevant assets of $1bn or more.
According to the DC survey’s findings, smaller DC schemes devote significantly less time and resources to evaluating the financial risks and opportunities associated with climate change than bigger ones.
Every master trust and nine out of ten large schemes had devoted time or resources to analysing the financial risks and opportunities brought on by climate change, but just over half of medium schemes, less than one in ten small schemes and only 5 per cent of micro schemes had done the same.
Fairs adds: “All pension schemes, regardless of size, are very likely exposed to climate-related risks and opportunities. Trustees shouldn’t wait for legislation to act. In managing risks effectively, all trustees should explore how climate change might affect long-term investment goals, their employer covenant and the opportunities that will come from a global pivot towards low carbon economies.”
The poll also revealed that 31 per cent of small schemes and 43 per cent of micro schemes have never used or been ignorant of TPR’s rules of practice. Smaller schemes were also less likely to be aware of the impending replacement of TPR’s codes of practice with a single code of practice than bigger schemes.
The planned unified code, which intends to improve scheme governance by being widely accessible and giving a more concise set of expectations for people involved in operating all forms of the scheme, was only mentioned by 20 per cent of micro and 28 per cent of small schemes, according to the statistics.
Fairs adds: “Good governance is key if trustees are to achieve good member outcomes. Being aware of codes relevant to them and following them is a very basic expectation on trustees of any scheme regardless of size. If trustees cannot meet this very basic standard, they should consider winding up and consolidating savers into a better-run scheme.”