The government is to legislate to require defined benefit schemes to appoint a chair, who will be responsible for reporting scheme funding decisions in a chair’s statement.

Publishing its white paper on Protecting Defined Benefit Pension Schemes today, 19 March, the Department for Work and Pensions said its green paper on DB schemes identified that some schemes can suffer as a result of poor or uninformed decision-making by some trustees, which can increase the financial risk to the scheme or the sponsoring employer.

“We will therefore legislate to require the board of trustees of DB pension schemes to appoint a chair and for that chair to report on their key scheme funding decisions in a statement from the chair of a trustee board. We anticipate this will encourage a greater focus on long-term thinking and sound risk management,” the paper said.

The DWP explained that the chair’s statement is intended to drive improved accountability and to demonstrate collaborative decision-making between trustee and sponsoring employer.

Trustees will be required to inform the regulator about their approach to managing risks to the scheme, including information on how the trustee is meeting the clearer funding standards and how the statutory funding objective (SFO) is being set in line with a long term funding objective. The chair will be required to submit the chair’s statement with their triennial valuation.

“An annual chair’s statement was considered but we have decided to require it alongside existing valuation requirements to mitigate burdens on schemes and the regulator. However, if the regulator had concerns they could request an ‘out of cycle’ statement,” the paper said.

The chair will also be required to reflect on and learn from past decision making to ensure their plans are optimal. This will also enable the regulator to get better information to assess risk, and to provide appropriate support or take enforcement action if necessary.

In addition, the paper said that a consultation on scheme funding standards will inform the content of the chair’s statement. The statement is expected to set out the scheme’s long-term financial destination and a description of the scheme’s strategic plan for reaching the SFO.

This should demonstrate how the clearer funding standards are being implemented for the scheme. The statement will also show the key risks to meeting the SFO (covenant, actuarial, investment and governance) and how trustees have chosen to mitigate and manage them.

The statement may also include a narrative setting out how trustees will meet key governance standards achieve value for money from their running costs and investment decisions. We will work with the regulator to ensure trustees and sponsoring employers are given the support and guidance they need to produce a chair’s statement.

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