'Crunch' time for DC pension trustees as first reporting deadline looms, says expert

It has written to a group of trustees to warn them of potential fines for failing to complete their 2015 scheme returns, after noting an 18% drop in completion rates between January 2014 and January 2016. Revised scheme returns reflecting last year's changes to the charging and governance rules will be issued to trustees from July, the regulator said.

Andrew Warwick-Thompson, director of regulatory policy, said that the regulator expected "full cooperation" with reporting requirements from trustees.

"We will act where trustees demonstrate that they are not meeting even the basic 'hygiene' duty of completing a scheme return," he said.

"We are supporting trustees in numerous ways including new web guidance and news-by-email to help them understand how to complete the new scheme return in order to demonstrate they are meeting new governance standards. They must now identify the scheme's chair and confirm that they have completed a chair's statement," he said.

Pensions expert Tom Barton [link] of Pinsent Masons, the law firm behind Out-Law.com, said that 2016 was a "crunch year" for DC trustees given the new governance requirements. Mixed schemes in particular would no longer be able to pay "lip service" to the DC elements of the scheme or focus all of their time and effort on defined benefits, which have traditionally been regulated more strictly he said.

"In fact, DC schemes will now be resource-heavy from a governance point of view," he said.

"As the regulator has confirmed, there are fines and penalties awaiting DC trustees who don't get this right. This is generally good news for workers and members of DC schemes, who should reap the benefits of competitive pricing and have greater visibility of how the scheme works. While the outcome risk still ultimately lies with the members, the improved governance should help guard against adverse outcomes," he said.

The revised returns, which will need to be completed annually, will require trustees to confirm that the scheme complies with the annual 0.75% of funds under management cap on fees on default schemes used for automatic enrolment, as well as to confirm that they comply with new governance requirements which also came into force in April 2017. They will also be required to confirm the name of the chair of the scheme's trustees, and whether any of the employers that use the scheme have passed their automatic enrolment staging date.

The Pensions Regulator has published a checklist guide about the new scheme return for trustees. However, Barton said that trustees "may well need some help with complex charge cap, value for money and default investment reporting requirements".

"DC trustees will need to consider this at the same time as looking at the new DC guides currently undergoing consultation," he said.

"Together with all of the other DC-related literature now out there it forms a rather daunting prospect. Inevitably there will be DC trustees and employers who consider this to be more than they bargained for – or, perhaps, more than the scheme can bear from a time and expense perspective. Trustees and employers in this boat should consider winding up and bulk transfer to another vehicle, although there is now a relatively short window in which to get this done before all of the new standards 'bite'," he said.

Each of the scheme's trustees will be jointly liable for a fine of between £500 and £2,000 if a chair's statement certifying compliance with the governance standards is required but has not been produced or has not been completed. Barton said that trustees who were unsure of the deadline for reporting, or of the content of the reports, should seek advice.