The pensions landscape has changed dramatically in recent years and is still evolving. Automatic enrolment is bringing millions of new savers into pensions each year. By 2020, the figure is expected to be 10 million, with the vast majority of newly enrolled savers being enrolled into large defined contribution (DC) schemes, primarily master trusts.
In the context of this changing environment, the need for effective governance has never been more important. Good governance means making strategic and timely decisions in pursuing the scheme’s objectives and achieving good outcomes for members. And it means effective structures and processes that enable trustees to have appropriate oversight of the scheme.
In particular, trustees managing money purchase plans need to take into account and understand the needs of their membership to inform the design of investment strategies and the assessment of value for members.
The big question with regards to DC schemes is: do they provide members with good value? Assessing value for members is a key responsibility for trustees and they should use their judgement as to whether their scheme offers good value. It is the savers, of course, who are bearing the risk of these schemes. That is why it is so important that there are high standards of governance and administration and that savers receive good value for money.
We have underlined our determination to drive up standards of governance and trusteeship to ensure all members and scheme sponsors can reap the benefits of good stewardship.
During 2017, we will undertake a targeted education and enforcement drive. We will seek to make our expectations clearer about what good looks like and use data to more effectively target our communication approach, tailoring our methods to the scheme size, type and compliance history.
Ultimately, we are not prepared to accept two classes of scheme member: those that benefit from good governance and administration, and those that do not.
Amanda Latham is policy analyst at The Pensions Regulator