An analysis of defined contribution (DC) pension plans has revealed that many trustees are struggling to hit some of the expectations outlined in the Pensions Regulator’s DC code of practice. One year after the introduction of the code, analysis by Towers Watson has revealed that many trustees are failing to meet guidelines for ‘transparency of costs and charges for members’ and assessing ‘value for money’.
Towers Watson’s analysis of compliance levels shows that in most areas trustees are in-line with, or outperforming, the Regulator’s expectations but there are still areas of governance, administration and communications that are proving difficult.
Nick Cook, senior consultant at Towers Watson, said: “Trust-based defined contribution pensions plans are going through a period of radical change, not only in terms of how benefits can be taken by members but also how they are expected to be governed by trustees.
“While many plans may already be broadly demonstrating the DC quality features that the Regulator expects, there are a number of new areas (such as assessing value for money) that even the most developed and sophisticated plans will need to take additional action on to demonstrate good practice.”
The study, which undertook assessments of around 120 DC plans with total assets of £12.5bn and 480,000 members, found that on average trustees were outperforming the Regulator’s expectations in areas such as reviewing investment fund performance, investment objectives and the default strategy, investment decision making, avoiding conflicts of interest and understanding trustees’ duties. It also revealed that targets set by the trustees themselves in their action plans for future governance activities tended to be higher than the Regulator’s expectations in almost all areas.
Cook said: “It is good to see that in what is currently a challenging environment for DC plans, trustees are generally doing a pretty good job and clearly have their members’ interests at heart. Where trustees are not meeting expectations, this is often because the requirements are new and are not necessarily straightforward.
“It is also worth bearing in mind that April 2015 will see the introduction of new minimum governance standards for DC plans which will require the Regulator to update its DC code. This will result in greater and more onerous requirements in some of the areas that we have seen that trustees are already struggling with, such as assessing value for money."
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