The Pensions Regulator (TPR) will take action to tackle pension schemes’ poor standards of stewardship and risks.
The regulator will make its expectations of trustees clearer and enforce against non-compliance.
According to Anthony Raymond, acting executive director for regulatory policy at the The Pensions Regulator, the results of surveys of defined benefit and defined contribution schemes show “that while some trustees are doing a good job, many trustee boards have failed to act” on the regulator’s codes and guidance to meet basic standards of good governance.
He said: “Members and sponsoring employers should not suffer because of apathy and we will not stand by and let it continue.”
The regulator's research showed that there are major gaps in the standards of individual small and medium schemes, both in the defined benefit and defined contribution sector.
These pension funds tend to display poorer governance standards, for instance they place less focus on training arrangements, regular board assessments, effective internal controls and oversight of third parties.
In the defined contribution world, many small and medium schemes, including those used for auto-enrolment are not meeting standards around administration, investments and value for members.
Significant issues also remain among defined benefit schemes, in particular around integrated risk management and fair treatment of the scheme, the regulator stated.
Mr Raymond said the regulator will launch a campaign this autumn, called 21st Century Trusteeship, which “will support trustee boards to reach and maintain standards, focusing on the fundamentals of good governance”.
He said: “We will be communicating extensively with trustees in the months ahead to set a clear benchmark for anyone working as a trustee.”
Last August, the regulator tightened the standards for who it considers to be a professional trustee.
The new description focuses on whether a person’s business includes trusteeship.
The Pensions Regulator will be stepping up its regulatory action in cases where trustee boards fail to meet minimum legal standards, and the watchdog will publish the details of that action, he added.
“We will also continue to examine whether sub-standard schemes should be consolidated with larger, well-run schemes.”
The regulator also wants to maintain an open discussion with government partners and industry on how scheme consolidation can play a part in driving up standards among small schemes, which consistently fail to meet standards.
The Pensions and Lifetime Savings Association (PLSA) also published a paper on this matter, setting out the trade body definition of good pension fund governance.
The PLSA argued the regulator “should concentrate on ensuring that individuals who are appointed to boards and committees have the appropriate knowledge and experience”.
This contrasts with The Pensions Regulator’s current approach, which the paper suggests is focused on process rather than people, the association said.
Regulation attempts to manage schemes from the centre by mandating the individual processes that schemes undertake, but the PLSA states this has not delivered the necessary improvements.