Public pension schemes ‘failing to fully engage’ with new governance requirements, says regulator

Executive director Andrew Warwick-Thompson said that the regulator would work with schemes in the new year to ensure that they had fully implemented the 2013 Public Service Pensions Act, which introduced new governance, cost control, design and administration requirements. The Pensions Regulator began regulating these schemes on 1 April 2015, and its own code of practice for public service schemes came into force on the same date.

Although only 48% of schemes responded to the regulator’s voluntary survey, these represented around 85% of total public service scheme membership and so provided a “good overview” of the market, the regulator said. Among respondents, over 90% had established a pension governance ‘board’ and 44% had reviewed their scheme against the practical guidance and standards set out in the regulator’s code of practice, it said.

“While there has been some encouraging progress, our research reveals a concerning picture of some public service schemes failing to engage fully with the requirements on governance and administration,” said Warwick-Thompson.

“We recognise that the reforms are significant and those involved with public service schemes face complex and challenging conditions. However, schemes must comply with the law to ensure that the right benefits are paid to the right person at the right time. We expect all schemes to assess themselves against the legal requirements and the standards set out in our code, and to take action to address any gaps,” he said.

Public sector pensions expert Nick Stones of Pinsent Masons, the law firm behind Out-Law.com, said that schemes had been working hard to raise standards since the new requirements came into force.

“The regulator’s comments are entirely understandable given that it is the guardian of standards – however, it is important to focus on the positives and how much has been done already to raise standards in this area,” he said. “Some public sector schemes might even argue that standards have always been high, but it is a question of how you evidence that, or transparency.”

“Whether recording existing good practice or bringing practice up a level, those responsible for public sector schemes will need to continue to develop and focus efforts on meaningful internal changes that need to be visible to an external regulator,” he said.

Public service pension schemes are established by statute, and include schemes for civil servants, teachers, health service workers, police and the armed forces. Combined, the schemes have over 13 million members and around 28,000 participating employers across the public, private and third sectors.

As is the case with all the Pensions Regulator’s codes of practice, the public service pension scheme code is not a statement of law but rather sets out what the regulator expects of schemes when complying with their legal duties. It applies to public service schemes established under the 2013 Act, to new public body pension schemes and to other statutory pension schemes that are connected to those schemes, but not to schemes in the wider public sector.

The regulator’s survey (49-page / 824KB PDF) assessed what schemes were doing to meet the requirements, and also the standard to which they were being run. It found that some schemes were slow, or had yet to take action, to comply with important governance and administration requirements including record-keeping. However, participating schemes reported good progress in setting up processes against the majority of areas in the regulator’s code of practice.