TPR steps up default fund governance

The Pensions Regulator (TPR) has announced that trustees will be under increased scrutiny to ensure that they are meeting their legal obligations and adequately governing default arrangements.

The regulator has told trustees of DC and hybrid pension schemes that they must regularly review their default strategies and the performance of their default arrangements.

It has already contacted over 500 schemes, asking them to confirm that they are reviewing their default arrangements, which is required under law every three years or when there is a “significant change in the scheme’s investment policy or demographic of its membership”.

Commenting, TPR executive director of regulatory policy, analysis and advice, David Fairs, said: “We are working to wake up those trustees who, research has shown us, do not engage with the regulator or sometimes do not realise they are not meeting the standards of governance or administration that we expect.

“This pilot is among some of the things we are doing as part of a new approach to contact trustees about their legal duties, support them to become compliant where we can and inform them about the alternatives – including winding up their scheme – if they do not or cannot meet the standards which we expect.”

Trustees who are struggling to meet the minimum standards “should consider whether value for savers would be improved by transferring them into an alternative and better run scheme”.

TPR is also taking increased action against scheme’s that are paying too much in dividend payments.

It has written to around 50 DB schemes that it believed were paying too much in dividends in comparison to contributions, with a further 100 in line to be contacted once the initial 50 have been processed.

Speaking at the SEI Pensions Investments Seminar, Fairs said: “We have some challenges around the default funds.

“We discovered that when we sent them e-mails, some of those schemes delete our e-mails without reading them. We are having a consultation in the next few months about how we might change that dynamic to get those schemes to engage with us.

“We are doing that [improving trustee governance] by a series of interventions. There are about 50 schemes where the level of dividends that were being paid were higher than we’d like given the level of deficit repair contributions.

“Some of those have responded positively to that intervention, some we may take regulatory action against. We are going to write a further 100 schemes where we will do something very similar.”

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