Trustees of registered pension schemes providing any DC benefits (other than defined contribution benefits attributable to additional voluntary contributions) are required to appoint a chair of trustees.
What new requirement?
Trustees of registered pension schemes1 providing any defined contribution benefits (other than defined contribution benefits attributable to additional voluntary contributions) are required to appoint a chair of trustees (where a chair is not already in place). One of the chair’s key roles is signing a governance statement in the scheme’s annual report and accounts, on behalf of the trustees.
When will it apply?
The requirement for a chair came into effect on 6 April of this year2. Schemes needed to make the appointment (where needed) and notify the name of the chair to the Pensions Regulator before 6 July 2015. The chair's statement must be included in the annual reports for schemes published for the year ending on or after this date. Annual reports must be published within seven months of the end of a scheme year, so if your scheme year ends 31 December, you must publish your first annual statement by 31 July 2016. Where a scheme’s year ends between 6 April and 6 July 2015 – such schemes will be required to include a governance statement relating to that three month period in the following year’s report instead.
What must it cover?
The annual statement must:
- Include the latest statement of investment principles governing decisions about investments in the default arrangement (i.e. the default funds used to meet automatic enrolment obligations).3
- Describe any review of the default strategy and performance of the default arrangement and any changes resulting from that review (or the date of the last review if none was undertaken in the latest scheme year).4
Core Financial Transactions
- Describe how the trustees have met their duty to secure that core financial transactions5 are processed promptly and accurately in relation to the money purchase benefits provided by the scheme.
Costs and Charges
- State the level of charges and transaction costs applicable to the default arrangement during the scheme year (or range of levels if there is more than one default arrangement).
- State the range of levels of charges and transaction costs which are not part of the default arrangement and in which assets relating to members are invested during the scheme year.
- Indicate any information about transaction costs which the trustees have been unable to obtain and explain what steps are being taken to obtain that information in future.
- Explain the extent to which charges and transaction costs represent good value for members.
Trustee Knowledge and Understanding ("TKU")
- Describe how the statutory requirement for trustees’ knowledge and understanding has been met for the scheme year (ie how their combined knowledge, together with the advice available to them, enables them to exercise their functions as trustees properly).
The statement must be signed on behalf of the trustees by the chair. In practice this means the statement needs to be approved by the trustees in advance.
Additional requirements for multi-employer schemes
Multi-employer schemes6 (including master trusts) also need to state how they have complied with the following obligations, where relevant to their scheme:
- for the majority of trustees and the chair to be independent;
- for an open and transparent recruitment process, where an independent trustee was appointed during the year; and
- to provide details of arrangements in place during the year to ensure that members’ views are represented to the trustees or managers.
Who checks whether you have complied?
Scheme auditors are required to notify the Pensions Regulator if they consider that this requirement has not been met (as is the case with all regulatory requirements applying to scheme reports). Trustees will also need to declare that a chair’s statement has been produced as part of the scheme return. The Pensions Regulator has announced that trustees who do not comply with the requirement to produce a chair’s statement will be fined between £500 and £2,000.
How can we help?
The chair’s statement is a new requirement, intended to show how the trustees of defined contribution schemes are meeting certain governance requirements. We can help you to identify ways to strengthen your governance framework in various ways – such as by providing training to supplement your TKU, reviewing your conflicts policies and administration arrangements and by advising you on recent legal changes (eg pensions flexibilities) and legal risks (eg pensions liberation).