Small and medium-sized UK defined contribution (DC) pension funds continue to lag behind on quality standards as The Pensions Regulator (TPR) promises action.

In its annual survey of DC and hybrid schemes, the regulator questioned schemes on their awareness, knowledge and implementation of 31 quality features identified by TPR as necessary to secure good member outcomes.

TPR questioned whether schemes were aware as to the changes to legislation in April that introduce legal minimum administration and governance standards, as well as the 75-basis-point charge cap.

The survey showed that the majority of small schemes (52%) know little or nothing about the 31 quality features, while 22% are not even aware of them – a drop of 9 percentage points from 2014.

Andrew Warwick-Thompson, executive director for DC at the regulator, said the results were similar to previous research and that the regulator remained concerned for the schemes.

He said TPR would be working with government bodies to find a solution to the lack of progress and urged small employers to choose master trusts for auto-enrolment.

Among medium schemes, awareness was slightly better, with only 6% unaware, but 32% knowing little to nothing.

However, among large schemes and auto-enrolment master trusts, awareness and knowledge was strong.

One one-tenth of larger DC schemes – generally defined as having more than 1,000 members – said they knew little.

Master trusts in particular were found to know quite a lot or a lot about the quality features – with all respondents answering positively.

Some 12% or smaller schemes said they had no plans to review their organisations against the 31 quality features, half the proportion from last year’s survey.

Two-fifths have already reviewed, and a further one-fifth plan to.

Around 10% of medium schemes said they had no plans in place.

Warwick-Thompson said the regulator remained concerned about schemes failing to understand the code.

“In relation to the smaller schemes, we have to accept many of them will never achieve the necessary standards,” he said.

“One of our objectives is to work with our government partners to [establish] what needs to be done to address that block of schemes that just don’t seem to be making necessary progress towards being quality schemes. You need to understand the code.”

TPR said there were similar patterns when teaching scheme knowledge on the legislative changes that came into effect in April.

Warwick-Thompson added: “There are specific legal requirements in relation to the chair’s statement, governance standards and charge controls.

“Trustees must make sure they are compliant with those. This is no longer a voluntary exercise with a voluntary checklist.”

Of the 31 features, smaller schemes had an average of 16, compared with 20 for medium, 24 for large and 25 for master trusts.

The most neglected features were around default investment strategies, administration systems and trustee knowledge.

Only one-fifth of small schemes demonstrated the default strategy was suitable for the needs of the membership.

“A number of areas where schemes have tended to perform the most poorly are now subject to new legal standards,” Warwick-Thompson said.

“Where schemes are falling short, we expect them to improve, or we may take enforcement action against them.”

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