19 February 2021
The Department for Work and Pensions has to conduct a five-yearly statutory review on the rules around DC pension scheme governance, with particular reference to the effectiveness of the ‘DC Chair’s Statement’. The outcome of the review has to be published by 6 April 2021.
In the run-up to this, consultants LCP have called for a major re-think, arguing that a single document cannot achieve the twin objectives of providing information for members and giving The Pensions Regulator (TPR) the information needed to assess regulatory compliance. LCP suggest that in some schemes the Chair’s Statement has gone almost entirely unread by members and has only been viewed by a handful of industry professionals.
Under current rules, trustees of “relevant schemes” (broadly most schemes with non-AVC DC benefits, with some exceptions) have to provide a Chair’s Statement each year, providing information on how their scheme meets certain governance standards. This includes information about a scheme’s default option, the costs and charges applied and the assessment of value for members.
The Pensions Regulator is obliged to issue a fine where the timing or content of the statement does not satisfy the rules, and in 2019 TPR even issued a fine to NEST for reporting failures. There have been some cases where fines have been issued for technicalities in the production of the statement, rather than what any industry expert would suggest is poor governance.
Many such statements have become unwieldy – regularly over 10 pages in length. In addition, the information needed to satisfy the Regulator about regulatory compliance is unlikely to be the same material which a scheme would send to a member of the scheme who simply wanted to understand more about how the scheme was run. Because of the emphasis on compliance (and the risk of a fine), LCP finds that schemes routinely have their Chair’s Statement reviewed by their legal advisers but almost never by communication experts.
Due to this LCP believes that two major changes are needed:
- The objectives of regulatory reporting to TPR and informing and engaging with scheme members should be achieved by two separate fit-for-purpose documents (and communications plans) rather than combined in a single statement;
- That the process of mandatory fines by TPR for non-compliance should be relaxed in favour of a more proportionate approach.
Commenting, Laura Myers, Partner and Head of DC at consultants LCP said:
“It is reasonable to expect pension schemes to report back to regulators and members on how well they are being run. But the language of regulators is not the same as the language of scheme members. The threat of a fine means that Chair’s Statements have become compliance-heavy documents, dominated by fears of legal action, rather than an opportunity to engage with members. We have come across some cases where the Chair’s Statement appears to have sat on scheme websites entirely undisturbed by members from one year to the next. DWP should seize the opportunity of this review to change the rules so that the Regulator is given the information that it requires in one document and members get something meaningful which will help them to engage more with their pension scheme.”