On 12 October 2016 the Pensions Authority (the "Authority") published its final two Codes of Governance for defined contribution (DC) schemes, which could equally apply to defined benefit (DB) schemes. The Authority has stated that the Codes of Governance set out the standards that trustees will be expected to adopt to demonstrate their commitment to serving the best interests of members and beneficiaries.
- Code 10 – Member communications: Trustees should ensure that member communications are comprehensible, accurate and address the needs of the members.
Trustees should be mindful of their obligations under the Pensions Act 1990 and the Disclosure Regulations. They should ensure that scheme information is accurate, clear, simply expressed, and helps members to make informed decisions about their investments, benefit options and contribution levels. The more effective the communication, the more likely it is to attract members’ attention and encourage them to engage with their savings. Clear information helps members to make informed choices.
A communication plan should be developed to meet the needs of the membership. Members should be reminded regularly of the importance of reviewing their investment choices and to review the adequacy of their retirement savings.
The Code asks trustees to consider various issues such as the role of information technology in meeting the objectives of communication, the provision of access to independent financial advice for members and whether they should include the quality of member communications on the scheme’s risk register. An annual survey of a sample of members could be carried out to review the effectiveness of the communications plan. Trustees should respond appropriately to feedback from members regarding the quality of communications.
- Code 11 – Value for money: Trustees should ensure that charges borne by members are reasonable, competitive and provide value for money (VFM).
The Authority has stated that trustees have a legal responsibility to act in the best interests of their members. The assessment and delivery of value for money (VFM) for members is an important part of this responsibility. A scheme provides VFM where the costs and charges deducted from members’ contributions provide good value in relation to the benefits and services provided when compared to other available options. It was noted that there is no single approach to the assessment of VFM and trustees will need to exercise judgment to determine whether their scheme offers good value.
The assessment should involve consideration of the quality and range of the services paid for, as well as the costs, and should take account of what members value most and what alternatives are available.
Trustees should ascertain which charges apply to the scheme, the rates applicable and their impact on members’ benefits. Criteria can be determined for assessing VFM which reflect the circumstances of the scheme and its members. Trustees can then evaluate the total benefits against the total costs of membership, particularly in relation to what members value most.
Trustees can discuss and review VFM at trustee meetings. Any issues should be raised directly with service providers and they should take action where VFM is not achieved. VFM should be included as an item on the scheme’s risk register. Monitoring VFM criteria on a regular basis is important to ensure the criteria remain fit for purpose in light of any external developments, growth in scheme assets, changes in the membership profile etc.
These two Codes of Governance are in addition to the Codes previously published by the Pensions Authority (Governance plan of action; Trustee meetings; Managing conflicts of interest; Collection and remittance of contributions; Investing scheme assets; Paying benefits; Keeping records; Data protection and Risk Management). The Codes set out how the Pensions Authority interprets relevant requirements of the Pensions Act 1990 and its approach on aspects of scheme governance. Each Code provides practical guidance for trustees of both DC and DB schemes.