The Pensions Regulator (tPR) has today (10 January) published the consultation ‘Regulating work-based defined contribution schemes'. This is the regulator's next step towards its goal of ensuring the delivery of good quality defined contribution trust-based pension schemes
Aviva's comment:
Applying the same level of strong governance to trust-based schemes as currently applies to contract-based schemes could provide a way of consistently delivering good quality defined contribution pensions.
The Pensions Regulator has recognised that smaller trust-based schemes do not always have the same quality of governance as larger schemes, and even some larger trust-based schemes fall short of expectations. However, contract-based schemes are governed at a global level meaning that all members of these schemes benefit from the same rigorous standards of governance, regardless of whether they work for a large or small employer.
The regulator's view that good governance and scale go hand-in-hand opens up an opportunity to utilise proven contract-based scheme governance standards in trust-based schemes. Employers with trust-based schemes who feel unable to commit to the Pensions Regulator's new requirements, with associated workload and costs, are likely to consider contract-based group personal pensions as a more viable alternative.
Aviva recommends:
A similar level of governance rigour used in contract-based schemes is applied to trust-based schemes.Minimum governance standards are consistently adopted and enforced across all trust and contact schemes.
Aviva's Head of Policy for Corporate Benefits, John Lawson, said:
"Aviva supports the Pensions Regulator's key findings and its desire to bring enhanced governance to trust schemes - similar to that currently applied to contract schemes.
"Strong governance and effective regulation is key to ensuring the delivery of good member outcomes. The Pensions Regulator has recognised the extensive governance already in place for contract schemes, such as group personal pensions (GPPs), covering Treating Customers Fairly (TCF), other FSA requirements, and simple good business practices. So it makes sense to build on this for trust-based schemes as well."
Master-trusts
The Pensions Regulator also raises some important questions regarding the standard of governance present in the small number of master-trust arrangements available in the market today. More specifically, the conflicts of interest that can arise where the provider of administration and investment services is exerting undue influence on the appointed trustees. As well as the independent audit recommended by the Pensions Regulator for these schemes, they may also need to change the make-up and structure of the trustee board, the powers of the board and put in place Chinese Walls control conflicts of interest.
Aviva's Head of Policy for Corporate Benefits, John Lawson, said:
"The Pensions Regulator is clearly concerned about the structure and operation of some master-trust arrangements currently being marketed as automatic enrolment solutions. Given the importance of achieving good member outcomes for automatic enrolees, it is critical that these schemes are governed properly. The costs of doing so may lead to some of these schemes winding-up."
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