DC chair’s statements: Could mandatory fines become a thing of the past?

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The mandatory fines that even minor breaches of the annual DC chair’s statement attract continue to cause resentment in the DC community. Can the Pensions Regulator beak out of the tight legislative grip in this area? 
 
Since April 2015, chairs of defined contribution schemes have had to submit an annual statement to the regulator giving details on their scheme’s default option, disclosing costs and charges and encouraging members to share their views. 
 
But the fact that small omissions cannot just attract a fine but also leave a fund’s reputation damaged for what could be seen as immaterial details has been causing consternation for some time. 
 
The Pensions Regulator is aware of this; in December, its director of policy, analysis and advice David Fairs, said that the regulator intends to speak to government about changing the regime so that only material breaches would attract a fine. 
 
But this conciliatory tone is new. Only eight months ago, TPR issued a press release in which it warned schemes to comply with the legal requirements on chair’s statements, citing two instances where it fought trustees in a tribunal. It won in one instance but had only one of three counts upheld in the other. 
 

What is material? 

 
Anna Copestake, a partner in law firm Arc Pensions Law, said requiring TPR to only fine trustees for material breaches would be a step in a right direction but questioned whether this would go far enough. 
 
“We might start seeing wrangles around what is a material breach,” she speculated. 
 
Instead, TPR should be given wider discretion, she argued, to allow it to take a more holistic view when deciding if a fine would be appropriate, “for instance based on whether the breach is persistent and any mitigating circumstances”, she said.   
 
Whatever changes might be made to TPR’s powers in this area, “it’s going to be really important that TPR makes clear when it will and won’t fine”, she stressed, as any lack of clarity would lead to “disproportionate” adviser costs and would hardly constitute value for members.  
 
Copestake added that chair’s statements have long since ceased to be a member document, having turned into “a ‘tick box’ exercise of frustrating proportions” instead. To ward off the risk of a fine and any publicity that might go with it, statements have become less and less member friendly, she noted, thus missing their policy objective. 
 
The recent Upper Tribunal decisions about fines that were contested by trustees “were the final nails in the coffin”, she remarked. 
 
She believes that they have also had dangerous unintended consequences from the ensuing publicity. 
 
“A member might spot in the press that their pension scheme has been fined, unaware that it was because of legal technicality. We are at risk of unnecessarily damaging members’ trust,” warned Copestake. 
 

Disincentive for sponsors to run DC trusts? 

 
The idea of a chair’s statement might be good in principle but its implementation needs considerable improvement, it seems. 
 
DC chair’s statements have focused the minds of trustees, said Steve Budge, a principal in consulting firm Mercer: “No other initiative or process has seen such a step change in the quality of governance of DC arrangements.” 
 
However, he too has serious misgivings about the use of fines and the publishing of scheme names as a stick to maintain compliance. 
 
“It seems wrong that an organisation wanting to put in significant time and effort into governing their employees’ pension savings has the potential for public shaming for a minor drafting error or wording omission, when there is potentially no direct link to the impact on member outcomes,” Budge said. 
 
The chair’s statement has been “a necessary introduction to improve the level of governance across the industry”, he added, “but now it has been taken to the extreme, which is damaging sponsor interest in doing the best for their employees”. 
 
The Department for Work and Pensions and the Pensions Regulator declined to comment. 
 

If TPR’s powers to issue DC chair’s statement fines are changed, what type of approach would be your preferred one? 

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