News for trust-based schemes
Since it was first introduced in 2015, the Chair’s annual statement has received mixed reviews. Although it can be a useful tool for demonstrating good governance, creating it can involve considerable time and resources, and it is not always written in a member friendly format.
In April 2021, the DWP published the outcome of its statutory review of the governance requirements for trust-based pension schemes which it carried out in conjunction with the pensions industry. Whilst all aspects of the governance requirements were considered, the focus of responses received was on the provisions relating to the Chair’s statement.
The key findings were:
• Policy objectives in relation to the Chair’s statement are not being achieved within the current approach. In particular, using the Chair’s statement as a single instrument to try to achieve multiple policy goals in relation to scheme governance and member engagement, does not work. The review therefore recommends that the Government and TPR consider the audience and role of the Chair’s statement in order to re-focus it.
• Industry understanding of the purpose and intended audience of the Chair’s statement is unclear. It was suggested that in the experience of trustees, the statement was read primarily by TPR, industry experts, consultants and potentially other trustees.
• Very few scheme members actually read the Chair’s statement or even know it exists and therefore scheme information should be delivered via other sources. One suggested solution was that the Chair’s statement could be split into two distinct areas – governance and the information required in compliance with legislation, and a short document containing information that is relevant to scheme members.
• The Chair’s statement is far too long, complex and costly to produce. This, coupled with the fact that member engagement with the statement is so low, means that it is becoming increasingly burdensome (indeed one responder felt that it is driving the mass movement from DC single trust schemes to master trust arrangements). In addition, some respondents to the review also described the completion of the Chair’s statement as a ‘tick box exercise’ due to the legislation surrounding it and the mandatory need for compliance.
The review considered what information should be contained within the Chair’s statement and concluded that this will be determined once the intended audience of the statement has been clarified. This will involve further work between DWP, TPR and industry representatives to agree content that is shorter and more focused.
A large number of concerns were also raised about the role of TPR in imposing fines. TPR is required to apply a mandatory penalty where a Chair’s statement does not comply with all the regulatory requirements and concerns were raised that TPR has interpreted this to mean they must be applied even in the case of a minor breach. There was a consensus that TPR should have the power to use discretion about imposing such fines.
Although outside the scope of the review, given the large number of concerns that were raised by industry representatives about imposition of fines, the review concluded that the DWP will consider this further with the aim of introducing a more risk-based approach to compliance and fines.