Trustees of most DC schemes will receive an automatic civil penalty of at least £500 if they do not prepare their annual governance statement within seven months of the scheme year end. The chair normally signs the statement.
Unusually, the Pensions Regulator has no choice but to impose a penalty in these circumstances. The maximum penalty is £2,000.
The statement sets out how the scheme meets DC governance standards. It forms part of the scheme’s annual report and accounts.
The content of the statement is outlined in the Regulator's Guidance on Communicating and Reporting that will come into effect alongside the new DC Code of Practice on 28 July 2016.
The Regulator says it will generally take these factors into account when considering the amount of a penalty:
- scheme size
- any other breaches of the requirement in the last few years
- whether there is a professional trustee (when the penalty will normally be the maximum).
The Regulator has publicised a case in which it imposed the minimum penalty. There it gave the trustees credit for reporting their own error and their prompt action to remedy it.
When the trustees make a scheme return, they must confirm they have produced their governance statement.
This penalty is another reason trustees need well defined governance procedures for the scheme year end and the deadline for various actions seven months later.
The Regulator has discretion to impose penalties on the same scale for a range of other governance failings too.