The Department for Work and Pensions (DWP) has outlined proposals to improve the governance and administration of both DC and DB pensions.
The proposed reforms include:
• Tighter controls on the movement of schemes to sole trusteeship
• Statutory minimum standards for pensions administration and
• An assessment of whether existing Master Trust boards have the sufficient size and mix of skills to oversee the largest schemes.
The DWP said it will work with The Pensions Regulator and the industry to set clearer criteria on the appropriateness of the appointment of professional corporate sole trustees (PCSTs) to schemes.
In its 'Trust-based pension schemes: Trustees and governance, building a stronger future' response to its consultation on the future of pension trusteeship and administration, the DWP said it would, “ensure that PCSTs can continue to be used where they are most useful in smaller schemes and schemes approaching buyout but not where they could weaken challenge in schemes running on.”
The Pensions Management Institute called on the government to focus on effective governance rather than prescriptive requirements for the move to PCSTs.
It said: “Rather than imposing unnecessarily prescriptive requirements across the wider trustee landscape, the focus should remain on ensuring consistently high standards, effective governance and appropriate safeguards where risks arise.”
On the question as to whether existing Master Trust boards have the sufficient skills to manage ‘mega’ schemes, the DWP highlighted that fewer than 50 trustees are responsible for overseeing the seven largest Master Trusts which account for over half of all occupational DC pension scheme assets.
Steve Webb, partner at LCP and former Pensions Minister, welcomed the idea that large Master Trusts should have larger boards.
He said: “On DC, our research has highlighted the growing demands on a very small group of trustees overseeing DC mega funds. There is a strong case for larger boards, providing greater diversity of thought and expertise, as well as for greater infrastructure to support trustees and protect their independence from the pension provider.”
The Pensions Management Institute agreed that the government focus on Master Trusts is justified.
The DWP report also approached the introduction of statutory minimum standards for pensions administration.
The Pensions Management Institute welcomed minimum standards, calling them key for the delivery of good outcomes for pension savers.
Helen Forrest Hall, chief strategy officer at the PMI, said: "We have consistently called for wider adoption of clear, consistent administration standards that the regulators can monitor and enforce, recognising the vital role administration plays in delivering good member outcomes, maintaining confidence in the pensions system and supporting the long-term success of pensions policy initiatives.
"High-quality administration sits at the heart of good governance and is fundamental to delivering positive outcomes for pension savers.”
David Fairs, partner at LCP, said standards are required to improve the consistency of service but the requirements could be badly timed.
He said: “These new statutory minimum standards will help drive more consistent service delivery across the industry to ensure that all members experience good levels of service and administration. But the requirements do add further to burden to administrators who are already busy with data cleanse exercises for the dashboard and risk transfer exercises and new requirements falling on DC arrangements such as VFM.”
The full DWP response can be read on the gov.uk website.