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The Pension Regulator turning up the heat

With Autumn leaves falling, it isn’t just our central heating at home that is being turned up. The Pension Regulator is also turning up the heat on Trustees and Employers with legacy defined benefit schemes.

Financing the accrued pension obligations of the UK final salary pension scheme promises is a high-profile subject, regularly reaching the front pages of the papers. As can be seen from the recent Thomas Cook announcement, it is also an important issue to thousands of UK employees.

What changes have been made?

The Regulator has raised the bar on the question of funding these promises, particularly for companies who want to continue paying dividends. They have also made it clear that schemes must have a well-defined long-term plan for securing members’ benefits.

It isn’t however just about large employers or large pension schemes. The Regulator is also turning up the heat on smaller schemes where they have raised concerns about the general standard of governance.  The focus on trustee behaviour has never been greater and the need to be able to demonstrate good governance has increased in several areas, for example:

  • Proper independence in the assessment of the employer covenant strength when setting the three-yearly actuarial valuation assumptions and negotiating the new funding plan.
  • Compliance with the increasing range of legal requirements, from completing the accounts on time to making sure the trustees’ pensions knowledge is provably up-to-date.
  • Formally assessing the risks facing the scheme, having written policies to deal with conflicts of interest and a detailed business plan.

Where trustees don’t meet the Regulator’s expected standards, we are starting to see a move from education towards enforcement.

It has become increasingly difficult for many schemes to find new trustees or where existing trustees are also company directors the demands on their time to manage challenging business issues impacts on their ability to focus on their trustee duties without increasing support. We are therefore seeing more employers looking at the option of appointing a professional and independent trustee, either jointly with the existing trustees or, increasingly, as a sole trustee

A professional trustee company will have well-established procedures for keeping on top of all of the deadlines and keeping governance in good order. You should expect them to keep you off the Regulator’s radar, while at the same time having clear protocols for consulting the employer on all of the really important issues of funding, management costs and good member communication whilst managing the conflicts of interest that can arise.

In response to these market developments the Regulator is also looking at the role and governance of the Sole Trusteeship model. We are fully supportive of these increasing drives to improve standards as well as embracing the transparency required for Sole Trustees, which is central to our business, with over two thirds of our trustee appointments now based on this model.

For more information about trustees, pension schemes and other independent trustee servicesget in touch with our team today.

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