Defined Contribution  

Regulator probes trustees on pension default funds

Regulator probes trustees on pension default funds

More than 500 defined contribution schemes have been contacted by The Pensions Regulator to ensure that their trustees are regularly reviewing their default funds.

This added scrutiny from TPR is being implemented as a pilot programme to ensure trustees are meeting their legal obligations and are properly governing their main arrangements.

Under the rules, a pension scheme which provides money purchase benefits must review its default strategy and the performance of its default arrangement every three years, or when there is a significant change in a scheme’s investment policy or demographic of its membership.

As part of the programme trustees have been asked to review guidance which outlines TPR’s expectations.

They were then asked to confirm if the strategy and performance of their scheme’s default arrangement have recently been reviewed and remain suitable by completing a simple online declaration form.

Initial indicators showed positive trustee engagement with the pilot, TPR stated.

More than 95 per cent of members of trust-based DC schemes are saving in a default arrangement, in which they are enrolled if they don’t make an alternative fund choice.

If a scheme’s default fund has not recently been reviewed, trustees are being asked to review the current strategy, taking members’ needs into account, as well as the performance of the default arrangement, TPR stated.

"Trustees struggling to meet the expected standards should consider whether value for savers would be improved by transferring them into an alternative and better run scheme," it added.

According to David Fairs, executive director of regulatory policy, analysis and advice at TPR, the regulator's focus is on good outcomes for savers in their retirements.

He said: "To provide pension savers with the best pot for retirement they need good investment returns as they contribute into a pension through their employment.

"Regularly reviewing a pension scheme’s default arrangement, which the majority of savers contribute into, is vital for trustees to ensure they are investing in the best interests of members."

Mr Fairs noted that the watchdog is working to wake up those trustees who don’t engage with the regulator or sometimes do not realise they are not meeting the standards of governance or administration that it expects.

He added: "This pilot is among some of the things we are doing as part of a new approach to contact trustees about their legal duties, support them to become compliant where we can and inform them about the alternatives – including winding up their scheme – if they do not or cannot meet the standards which we expect."

maria.espadinha@ft.com

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