The Department for Work and Pensions (DWP) Command Paper, ‘Better workplace pensions: Further measures for savers’, commenced consultation in March 2014. This was based on a number of measures including capped charges in default funds, a ban on inappropriate charges and proposed introduction of greater transparency and minimum governance standards in workplace DC schemes.
A response to this consultation has now been issued along with draft regulations that set out further details on how the new measures will be implemented.
In this article we focus on the new governance standards which will be required in all workplace DC schemes.
Minimum governance standards
The minimum governance standards requirements will place a number of additional obligations on the trustees of occupational DC schemes.
These standards include:
- Default arrangements must be designed with the best interests of the members in mind and must be reviewed regularly. There is no exhaustive list of factors set out which trustees must take into account when considering the set up of a default arrangement, as it is recognised that the factors will vary depending on the membership of the scheme. Details of the default strategy must be set out in a statement which will require to be reviewed at least every three years, or after a change investment strategy or membership profile. A report on any reviews conducted will require to be included in the Chairman’s annual statement.
- Core financial transactions including investment of contributions to the scheme, transfers in and out of the scheme, transfers between different investment classes within the scheme and payments from the scheme to members require to be processed promptly and accurately. Trustees will be responsible for ensuring that this is the case.
- Value of costs and charges borne by members must be calculated and assessed to ensure that they represent good value for the member. There is to be no prescribed way in which such assessment must be carried out, but it has been stated that the DWP expect this to go beyond simply checking that charges on default arrangements come in under the cap on charges.
- A Chair of Trustees will require to be appointed. They will be responsible for signing off an annual statement setting out how the governance requirements have been addressed, this statement will require to be included in the annual report.
The legislation is expected to largely come into force from April 2015, and similar rules in relation to workplace personal pension schemes resulting from Financial Conduct Authority consultation are expected around this time.
For more information about auto enrolment or workplace pensions, please contact a member of our specialist team below.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.