Two of the country's largest mastertrusts have called for a legal standard to raise the barriers to entry for providers, as the industry evaluates the Pensions Regulator's assurance framework.
The voluntary framework is designed to tie in with the regulator’s defined contribution code of practice, which sets quality features for schemes. Some experts have raised doubts about the effectiveness of voluntary measures in enforcing good governance.
We’re all for initiatives to raise standards, and anything anyone can do has got to be a good thing
Darren Philp, The People's Pension
The framework was originally comprised of 43 control objectives. This was reduced to 38 following responses to a consultation issued by the Institute of Chartered Accountants in England and Wales in October 2013.
The control objectives are based on the regulator’s six principles for DC schemes, which include high standards for scheme governance, administration and communication with members.
Some experts argued that the voluntary nature of the framework may limit its effectiveness, as poor-quality schemes could just ignore it altogether.
“We’re all for initiatives to raise standards, and anything anyone can do has got to be a good thing,” said Darren Philp, head of policy at mastertrust The People’s Pension. “The framework is a step in the right direction but it doesn’t go far enough.”
“Voluntary measures are only as good as the take-up,” he added.
Morten Nilsson, chief executive of mastertrust Now Pensions, called for the introduction of mandatory standards for mastertrust governance.
“Mastertrusts should be licensed by the [regulator],” he said. “The framework seems a good thing if it’s mandatory. I don’t believe in voluntary codes.”
The assurance is intended to help employers to easily identify good-quality mastertrusts when going through auto-enrolment.
“The regulator is going to signpost which schemes have got the assurance,” said Andrew Penketh, head of pensions at accountancy Crowe Clarke Whitehill, and chair of the working group that created the framework.
Penketh added the framework would be kept under review, with the possibility that it could become mandatory in future.
Meeting the code
The providers also raised concerns that time-squeezed employers approaching auto-enrolment were unlikely to carry out a full market review and so are less likely to pay attention to voluntary accreditation.
Nilsson said: “If you look at how difficult it is for the regulator to communicate rules at the moment, it’s difficult to imagine how they’ll communicate the framework."
Trustees will be expected to issue an initial report by summer 2015 and to report annually thereafter. They will also be required to appoint an independent reporting accountant.
Concerns have been raised by respondents that annual reporting may be too costly and intrusive for schemes. “We would suggest that a full audit is conducted triennially and that a less intrusive and costly audit is conducted in the interim years,” one respondent said in the consultation response document from the ICAEW.
Philp said annual reporting may be too frequent, but warned three years may be too long to wait between audits.
“I’m not one for adding costs; what changes within a year?” he added. “That said, a lot can happen in three years.”
