While the majority of savers are in defined contribution schemes that are well run, there is an “unacceptable” scale of under-performance in smaller pension funds, the regulator has warned.
The Pensions Regulator's annual DC survey, published today (August 1), showed that almost three quarters of savers (71 per cent) are now in pension schemes which are meeting all of the expected governance standards, an increase from 54 per cent in 2018 and 32 per cent in 2017.
On the other hand, most smaller schemes are failing to meet standards, with only 4 per cent of micro pension funds - which have between two and 11 members - and 1 per cent of small schemes - which have between 12 and 99 members - meeting all of their governance requirements, the TPR stated.
TPR governance rules centre on the trustees' knowledge, the scheme's value for money, and adequate processing of financial transactions.
According to David Fairs, executive director for regulatory policy, analysis and advice at TPR, pension savers were generally better served by big schemes than small ones.
He said: “This long tail of smaller schemes which do not meet the standards we expect is simply unacceptable.
“This research highlights why our current future of trusteeship and governance consultation is so important.
"We need to reduce the number of poorly run schemes so that no saver’s retirement is put at risk by bad scheme governance.”
TPR proposed to reduce the number of poorly-governed pension schemes by promoting consolidation in a consultation in July.
In the document, TPR said trustees of underperforming schemes will need to consider whether they are able to offer value for members, or whether savers are better served in larger schemes, which typically benefit from economies of scale.
Mr Fairs added: “All trustees – of pension schemes big and small – should be taking their role tremendously seriously and ensuring that they are running their scheme properly so savers get a good retirement.”
The watchdog’s survey also showed that trustees of 43 per cent of small schemes have considered winding up.
However, those pension funds were more likely to meet the required standards than schemes of the same size that haven’t considered closing, TPR found.
Mr Fairs said: “The statistics clearly show that those trustees which are running small schemes to a comparatively higher standard are trying to do the right thing for their savers by winding up.
“They recognise that savers will generally get better value in a larger, better-run scheme which can benefit from economies of scale.
“The most disengaged trustees are blissfully unaware that they are failing savers by not running their schemes properly.”
Helen Morrissey, pension specialist at Royal London, noted that poor scheme governance put the retirement savings of scheme members at “very real risk”.
She said: “If standards cannot be improved within these schemes then steps must be taken to wind them up.”
maria.espadinha@ft.com
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