New guidelines provide carrot and stick on DC administration

I was part of the committee that ushered these new standards in, and they come not a minute too soon.

For too long, there has been an unhelpful inability to provide definitive and measurable guidance for those operating on the front line.

This is partly because regulators are just that – regulators, not legislative bodies – and partly because the challenges of the defined contribution pensions landscape, especially post auto-enrolment, are evolving relentlessly.

The result has been confusion over where the administrative governance burden actually lies.

Improving outcomes – the carrot

These comprehensive guidelines provide the help required to ensure trustees are making the right decisions with the proper level of understanding of the details and, crucially, know the implications of getting it wrong. This makes it something of a carrot and stick for trustees

Using the guidelines to measure administrative capacity and effectiveness means trustees can do what they are there for – put member outcomes first. That is the carrot.

Why do we need this now? As we move closer to a new authorisation regime for mastertrusts, the increase in the amount of data that must be transitioned smoothly from scheme to scheme will test the limits of trustees’ knowledge and the robustness of these guidelines.

Good data are vital for efficiency and good member outcomes. Bad data have inherent risks attached, and trustees must weigh this up in any transition negotiations.

Regulator wields a stick

If trustees allow schemes with poor record-keeping or inaccessible data to be absorbed, it is they who will be penalised. That is the stick in action, and this may be news to many trustees.

The Pasa guidance also includes questions trustees should ask to make sure they don’t make costly mistakes, and it describes what good advice to providers looks like – and how that all relates back to good member outcomes.  

This is an entirely new way of thinking. Many trustees don’t appreciate all the hard work that must go into good governance, every day. Many believe most of it could be outsourced and that their remit is simply to attend a couple of meetings a month at most with a focus on investment and to facilitate the wishes of the provider they serve. Not so – poor processes and controls implicitly add costs and complications.  

Ignore commercial pressures

These guidelines deliver the message that as trustees, we need to be on top of governance as much as anything else.

We need to have the resources to ask the questions and we need to have the confidence and power to enforce the best outcomes, regardless of external commercial pressures.

Take payroll. It is the responsibility of the trustees to make sure the employer has provided the correct payroll data and that it complies with the scheme’s specific requirements.

If, for example, trustees allow absorption of a scheme that relies on PAPDIS or .csv files only, and these are incompatible with what their provider uses, they must ensure this is fixed, whatever the cost. That might not be worth it.

Trustees need to know it is their responsibility and they will bear the consequences for making the wrong decision.

Andy Cheseldine is a client director at Capital Cranfield Trustees and independent chair of trustees at Smart Pension.