The Government has issued further proposals to improve governance in DC workplace schemes.
New quality standards
From April 2015, trustees of occupational DC schemes will be subject to minimum quality standards ensuring that:
- default investment strategies are designed in members’ interests and regularly reviewed;
- core scheme financial transactions are processed promptly and accurately;
- trustees assess the levels of charges borne by members and the costs incurred through investment of pension assets; and
- trustees have, or have access to, all of the knowledge and competencies necessary to properly run their scheme.
These standards will be set out in regulations and the Regulator’s recently issued DC Code of Practice will have to be updated in due course to reflect them.
All schemes will need to have a chair of trustees with responsibility for saying how the scheme has complied with these governance requirements, and trustees will need to provide an independently audited statement of compliance.
There will also be a requirement for providers of contract-based schemes to operate independent governance committees to assess value for money, and report on how quality standards are met.
From April 2015 there will be a charging cap of 0.75% for the default funds of all schemes which are qualifying schemes for the purposes of auto-enrolment. The cap will apply to all management charges, but (initially, at least) exclude transaction costs. In relation to such qualifying schemes, the Government will also outlaw:
- from April 2015, consultancy charges under which members must pay for advice given to their employer;
- from April 2016, payments for sales commission which are deducted from members’ pensions, and increased charges when members leave employment but their savings remain in the company’s pension scheme (spelling the end for “active member discounts”).
The consultation document, “Better Workplace Pensions”, can be found here.