TPR urges DC trustees to strengthen member support and review governance
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The Pensions Regulator is calling on trustees to review and bolster the level of support they give DC members following concerns that the economic turbulence has reduced fund values.
The watchdog wants to ensure that savers close to retirement are adequately supported, so they understand the consequences of a fall in their scheme value and avoid making quick decisions that could result in poorer outcomes.
The watchdog wants to ensure that savers close to retirement are adequately supported, so they understand the consequences of a fall in their scheme value and avoid making quick decisions that could result in poorer outcomes.
In guidance published by TPR on 12 January, Supporting defined contribution savers in the current economic climate, it also called on trustees to strengthen governance and oversight as well as ensure their investment strategies support better outcomes for savers.
Given that in life-styling funds DC savers tend to be shifted towards bonds between five and 15 years before retirement, these savers will have experienced a bigger fall in the value of their pots than others because of reduced bond prices.
Therefore, the watchdog said trustees should target their efforts towards those most affected and in need of help.
Trustees should help savers understand what a fall in their DC pot means for them given their personal circumstances and ensure member expectations are better aligned with where they are invested.
David Fairs, the watchdog’s executive director of regulatory policy, analysis and advice, expects all trustees to consider the issues raised and take appropriate action as part of their ongoing governance responsibilities.
TPR is monitoring the situation in financial markets closely to assess the impact on both DB and DC schemes, he said, adding:
“We are speaking to trustees and their advisers about how schemes are responding to current market volatility, as well as industry representative bodies, including how they can support savers through this period.”
The watchdog also urged trustees to review their governance structures to check they are suitable – for example, looking at how investment risks are assessed and how investment decisions are made.
TPR said trustees should check if their scheme has sufficient scale, time and resource to govern its DC arrangements effectively, particularly for hybrid schemes given the recent liability-driven investment crisis that has affected DB schemes.
They should also review their investment advisers against agreed objectives and check they are focused on delivering good member outcomes. Considering this, TPR has updated its guidance for trustees in setting objectives for their investment consultants.
TPR also recommended schemes consider how different groups of members have been impacted, assess how investments protect against high inflation and review the use of cash funds.
Pensions Administration Standards Association board director, David Pharo said schemes should consider the issues highlighted with their pensions administration providers “both in terms of what information is currently available to savers and whether additional information, guidance or access to planning tools would be helpful.”
By Stephanie Baxter
