TPR: DC governance stats show smaller schemes should wind up

Most smaller trust-based defined contribution (DC) schemes fail to meet governance and trusteeship standards and should quit the market, according to the UK’s Pensions Regulator (TPR).

According to its annual DC survey, the trustees of 43% of small schemes have considered winding up. However, those schemes were more likely to meet the required standards than schemes of the same size that have not considered winding up, TPR said.

David Fairs, executive director for regulatory policy, analysis and advice at TPR, said: “The statistics clearly show that those trustees which are running small schemes to a comparatively higher standard are trying to do the right thing for their savers by winding up.

“They recognise that savers will generally get better value in a larger, better-run scheme which can benefit from economies of scale.” 

The 2019 survey was the first time TPR had asked trustees whether any consideration had been given to winding up the scheme.

The survey revealed a strong correlation between scheme size and compliance with governance requirements. Almost three-quarters (71%) of savers were in pension schemes that met all of the expected governance standards, up from 54% in 2018 and 32% in 2017.

“These figures clearly show that people saving for their retirement are generally far better served by big schemes than small”

David Fairs, TPR

For micro schemes and small schemes the corresponding figure was 4% and 1%. Micro schemes have between two and 11 members, and small schemes between 12 and 99.

Fairs said: “These figures clearly show that people saving for their retirement are generally far better served by big schemes than small. This long tail of smaller schemes which do not meet the standards we expect is simply unacceptable.”

Cybersecurity, climate change

TPR’s survey also for the first time included questions about cybersecurity controls, climate change considerations, the self-reported influence of the regulator’s interventions and interactions, and attitudes towards its approach to master trust assurance and supervision.

Three quarters of schemes reported they had more than half of the cybersecurity controls expected by TPR in place. One in seven reported experiencing cyber attacks or breaches in the previous year, a third of which reported a negative impact. The proportion of schemes experiencing any attacks was highest for master trusts (76%). Across all sizes of scheme, the most common cyber breaches/attacks were staff receiving fraudulent emails or staff being directed to fraudulent websites (7%). 

One in five relevant schemes took account of climate change in their investment strategies and approaches, covering 82% of DC members. This is because the vast majority of members were in master trusts, and 59% of master trusts took account of climate change, compared with 42% of large schemes, 26% of medium schemes and 11% of those small and micro schemes used for automatic enrolment. The main reason for not considering it was that it was not felt to be relevant to the scheme (mentioned by 35%).

From 1 October, schemes’ statement of investment principles has to include trustees’ policies on how they consider environmental, social and governance factors, including climate change, in their investment strategy.

About a fifth of the 17 master trusts interviewed in the survey disagreed that TPR had been clear in setting its expectations of the multi-employer pension vehicles. The vast majority agreed the regulator had been proactive in engaging with them and robust in the way it pursued its objectives.

Eleven master trusts have been authorised by TPR since this became a requirement. Providers had until the end of March to submit their applications to the regulator or request a six-week extension. Last year TPR estimated up to 30 providers could exit the market either through mergers or winding up.

New trustee needs survey

TPR’s survey announcement came as the Pensions and Lifetime Savings Association (PLSA), the Pensions Management Institute and the Association of Member Nominated Trustees launched a trustee-focused survey of their own with pension fund industry forum Mallowstreet.

According to Stuart Breyer, CEO of Mallowstreet, the survey was “all about the needs of pension fund trustees”.

Laura Webb, the PLSA’s director of membership engagement, said: “The trustee community is responsible for the financial futures of over 76% of the working population in the UK, so it’s imperative that we get a better understanding of the challenges the sector faces.

“Given the interest of PLSA members this is a vital piece of work which can really put trustees’ needs at the forefront of the agenda when the results are published and shared within the industry.”

The survey findings will be shared with TPR and the government to campaign for trustees’ needs, according to the survey backers.