The Pensions Regulator has fined Pitmans Trustees Limited the maximum amount of £2,000 per scheme for failing to produce a Chair’s annual statement for three schemes.
Since 6 April 2015, trustees of defined contribution (DC) occupational pension schemes have been required to publish a chair’s annual statement within seven months of the end of the scheme year. The Regulator’s actions in relation to Pitmans confirm that it intends to enforce this requirement, and the Regulator’s executive director for frontline regulation stated that “schemes should be aware that this type of breach will result in a fine”.
In this case, the maximum fine was deemed appropriate as there were no mitigating factors and Pitmans, being a professional trustee, could be expected to meet a higher standard of care and demonstrate a greater level of knowledge and understanding than other trustees. Non-professional trustees may receive lower fines for breaches of their duties, but will still risk penalties if they do not comply with the requirements. Note that a trustee will remain personally liable for any fines or civil penalties as the law prohibits trustees from being protected from this liability by the scheme rules or from buying insurance from the scheme’s assets to cover this liability.
The fines issued to Pitmans serve as an important reminder of the Regulator’s increased scrutiny of DC occupational pension schemes and follows a raft of legislation and regulatory guidance aimed at improving DC scheme governance and value for money, and increasing transparency on costs and charges. Trustees of DC occupational pension schemes and defined benefit occupational pension schemes with DC AVCs are advised to familiarise themselves with the statutory and regulatory requirements applicable to their schemes.
On this point, the Regulator has recently published a revised Code of practice 13: Governance and administration of occupational trust-based schemes providing money purchase benefits. This sets out the minimum quality standards for schemes which provide DC benefits, including:
- Chair of trustees. Schemes must have a chair of trustees (and a replacement should be appointed as soon as possible if the current chair leaves). Trustee boards should have a robust and documented appointment process.
- Chair’s statement. A chair’s statement, confirming how the scheme is meeting the governance standards, must be produced within seven months of the end of each scheme year. The statement must include specified information, including information relating to the default investment strategy, the charges and transaction costs in the default fund and the trustees’ levels of knowledge and understanding.
- Core financial transactions. Trustees must ensure core financial transactions (for example, investment of contributions, transfers of assets and member payments) are processed promptly and accurately. Processes should be regularly reviewed and technological developments taken into account to ensure transactions are dealt with as quickly as possible. The accuracy of the data held by trustees or their administrator should be reviewed at least annually.
- Charges and costs borne by members. At least annually, trustees must calculate the charges and transaction costs borne by members and assess whether they are good value for members.
- Default arrangements. Trustees must review the default strategy and the performance of funds at least every three years. They must also prepare and maintain a statement of investment principles governing the default fund, which must be revised after every review unless no action is required by the trustees.
Accompanying the Code are six DC “how-to” guides published by the Regulator in July 2016 and designed to provide additional guidance on the steps that trustees should take to comply with the minimum quality standards.