Talking head: The Pensions Regulator's Andrew Warwick-Thompson looks at the results of the watchdog's latest governance survey, and highlights where schemes are particularly falling short.
Good governance from the point of joining a scheme to the point of drawing a retirement income is key to inspiring confidence. We want to see all consumers enrolled into schemes that are well-managed, scalable and sustainable.
Our recently published annual scheme governance survey shows standards continue to be mixed, and in some cases may even fall below the legal minimum.
We hope that by publishing research of this nature, we will draw attention to the areas that need more work
Just half of DC schemes surveyed said they had reviewed their statement of investment principles in the past three years. One in five schemes said they never review their SIP or do not have one, which is concerning.
It is positive to see that schemes that are to be used for auto-enrolment are more likely to have reviewed their SIP – 75 per cent compared with 34 per cent – and that AE schemes generally performed better across the survey.
We will shortly be publishing research into the take-up of our DC quality features across occupational schemes and mastertrusts, and the results mirror many of the governance survey findings.
Larger schemes perform consistently better than smaller schemes, and investment-related features are among the lowest in presence among schemes.
Examples include whether trustees ensure the performance of investment options, including a default strategy, are regularly assessed, and whether they ensure objectives for each investment option are identified and documented in order for them to be regularly monitored.
As more people are automatically enrolled, the volume of assets under management will increase substantially and it is essential that these are managed to the highest institutional standards.
Our DC code provides practical guidance to trustees to help them meet the legal requirements, including SIPs, and we urge trustees unsure about this area to familiarise themselves with the code.
We are sometimes criticised for creating further work for schemes, but it is important to remember that 22 of the 31 DC quality features are based on existing pensions legislation – we are not asking schemes to do anything new here.
The remaining nine features comprise best practice. Trustees may decide not to follow them, but they need to be prepared to explain why.
The quality features and associated work such as our DC governance tool and independent mastertrust assurance are designed to be used as practical tools by the industry and to reassure consumers and employers about their choice of product.
We hope that by publishing research of this nature, we will draw attention to the areas that need more work and have a positive impact on trustee behaviour.
Andrew Warwick-Thompson is executive director for DC, governance and administration at the Pensions Regulator
