The Pensions Regulator has high expectations of the contents of the annual chair's statement, which has to be prepared by trustees of most defined contribution (DC) schemes within seven months of the end of each scheme year. Guidance issued by the Regulator in June, and reissued earlier this month sets out in considerable detail the information it expects to see. In many cases, this goes well beyond the statutory requirements contained in the scheme administration regulations.
For example, in relation to trustees' knowledge and understanding, the regulations require trustees to describe how the requirements have been met during the scheme year and to explain how the trustees' combined knowledge and understanding, together with advice available to them, enables them properly to exercise their functions as trustees. The guidance expects the statement to describe (among other things) how the trustees have demonstrated throughout the scheme year:
- in relation to trustees' knowledge and understanding, the Regulator expects the statement to confirm there is an appropriate induction process in place for new trustees, and to provide specific details of the training in place for existing trustees. Statements which simply confirm the requirements have been met without providing details are likely to be found in breach;
in relation to the requirement to provide the statement of investment principles for the default arrangement, simply confirming it is available on request is not sufficient; and
- in relation to the requirement to explain how the trustees have met the requirements for processing core financial transactions, the Regulator expects trustees to provide details about the processes in place (for example what Service Level Agreements (SLAs) do you have with the administrator). Statements which simply confirm that the core financial transactions requirements have been met without providing any details are likely to be found in breach.
Where the Regulator is of the opinion that trustees have not prepared a statement in accordance with the requirements, it is obliged to issue a mandatory penalty of between £500 and £2,000. In the second quarter of this year the Regulator issued 121 mandatory penalty notices. Of these, 74 were subsequently revoked.
Trustees who have provided chair's statements in the past need to understand that the requirements are being interpreted by the Regulator in a far more stringent manner than previously. We recommend that such trustees check the guidance carefully to ensure that their statement meets all the Regulator's expectations. We will be pleased to review, or help draw up, suitable statements.