DC governance statements The Pensions Regulator has introduced governance statements


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Chair of The Pensions Faculty (TPF) Cliff Vidgeon FCIPP


The Pensions Faculty Management Committee Margaret Thomson FCIPP Frank Gallacher FCIPP Bill Fulton FCIPP Roy Roach MCIPP Richard Bywaters


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rustees are expected, once a year, to assess the extent to which their scheme has the Regulator’s list of defined contribution (DC) quality features, and publish a governance statement summarising the results of that assessment.


The background The introduction of governance statements follows on from the publication of Code of Practice 13: Governance and Administration of Occupational Defined Contribution Trust-based Schemes, which came into effect in November 2013. The two years prior to that were notable for the great increase in regulatory interest in, and legislation affecting, DC schemes, mainly driven by the commencement of automatic enrolment.


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More and more pressure is being put on trustees to demonstrate that they are managing their schemes effectively, and in a way that will deliver ‘good member outcomes’. Whilst a ‘good’ outcome is not defined anywhere within the Code of Practice or associated regulatory guidance, the 31 ‘quality features’ endorsed by the documents focus very strongly on aspects such as ensuring that sufficient time is spent on DC matters, understanding the nature of the membership of the scheme, and designing appropriate default investment strategies.


What is a governance statement? The governance statement that trustees are now required to complete and publish annually should state whether the scheme can demonstrate the 31 quality features. The Regulator suggests that it should also: l note where a feature is not present, but the trustees nevertheless consider that the scheme complies with the law and good practice


l describe trustees’ plans to introduce a feature or improve upon an existing feature, and l set out their priorities for the following scheme year.


A template for the governance statement is provided; it can be adapted to suit scheme’s particular circumstances. It is accompanied by a template for scheme assessment; a 32-page document intended to help trustees show that their schemes meet the standards set out in the Code and guidance. Trustees are now required, for the first time, to formally review the way in which their schemes are governed. Andrew Warwick-Thompson, the Regulator’s executive director for DC, governance and administration, said recently that the Regulator will start to visit schemes during 2014 to assess how well they comply with the 31 quality features set out in the Code and regulatory guidance. Whilst the governance of many DC schemes has been significantly improved over recent years, few except the best-run schemes are likely to have been formally assessed to see how well they comply with the quality features. It is important for trustees not only to ‘tick the boxes’ but to really think about what the quality features mean for their schemes and, ultimately, their members. What may constitute a ‘good’ member outcome or ‘sufficient’ time allotted to DC considerations may be very different from one scheme to the next. It is likely that the Regulator’s visits to schemes will start with the largest schemes. Trustees of smaller schemes may find that they have more time to carry out their assessments, but should start sooner rather than later to consider which areas they need to tackle to be able to give a favourable governance statement.


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