There has been a lot of discussion about pension scheme governance recently. Effective from 6th April 2015 The Pensions Regulator (TPR) brought in new governance standards and charge controls for all workplace pension schemes. This meant that many occupational pension schemes offering money purchase benefits (nearly all these days) had to take action to ensure their schemes comply.
Nearly six months on and TPR have completed a survey of trust-based schemes. Alarmingly TPR say that just 39% of small schemes have reviewed the standards now required. Furthermore, 74% of small DC schemes and 48% of medium schemes have little or no knowledge of the quality features that need to be demonstrated within occupational pension scheme governance.
Conversely, all master trusts and 88% of large schemes had good knowledge of the quality features required. With master trusts playing such an integral role in the auto enrolment market both now, and in the future, these findings are reassuring. Small and medium trust based schemes are mainly providing benefits to relatively large employers that have already staged.
What does this mean for advisers in the auto enrolment market?
I am often asked by advisers “what is good scheme governance?” The easy answer is to point them to TPR’s website and tell them to at least read its “essential guide to governance standards and charge controls” downloadable as a PDF document. However, that is only part of the answer.
Quality advisers will want to wrap another layer of governance around their employer client pension arrangements. Of all the fully compliant pension schemes available to SME and micro employers, which are the most suitable to that employer? When reviewing existing auto enrolment schemes for clients are they still delivering good value and good member outcomes effectively for the employer? Is the compliant pension scheme working well in tandem with payroll to deliver all the other regulatory auto enrolment requirements? Advisers’ due diligence on behalf of clients can add real value.
Occupational pension scheme governance is only part of the overall auto enrolment governance that an employer needs to comply with. The adviser should be invaluable in helping employers review how they are doing.
Of trust based schemes, arguably it is really only the large master trusts that have the resources and finances to deliver long term governance with the required low charges. Then there is the debate about whether large GPP providers can offer true independent governance especially if they are providing the investment management of the default funds. Given the TPR survey, is there a specific opportunity for advisers to review small and medium trust based schemes on behalf of employers? Advisers’ due diligence on behalf of clients can add real value.
Finally, governance wise, not all master trusts are the same. Only three, including NOW: Pensions, have completed the master trust assurance framework AAF 02/07. This is a voluntary framework introduced as a quality standard to enable trustees of master trusts to demonstrate high standards of scheme governance and administration.
Set up by The Pensions Regulator and the Institute of Chartered Accountants in England and Wales, the requirements of the master trust assurance framework are rigorous and detailed and we believe it should be the first thing an adviser looks for when carrying out due diligence on master trusts.
If you would like more information about NOW: Pensions and how we can help you and your auto enrolment clients please register your interest here and get access to our auto enrolment Adviser Toolkit.
Alternatively you can contact our business development team on 0333 33 22 025.
Martin Olive, Strategic Partnership Manager, NOW: Pensions.