If trustees fail they will face the consequences!

12 / 10 / 2016

In August 2016 the Regulator issued three £2,000 fines against an independent trustee company following their failure to produce a signed chair’s statement before the statutory deadline.

Since 6 April 2016 trustees of DC schemes trustees have been under a requirement to ensure an annual chair’s statement is produced and signed.

Trustees are now being urged to pay attention to their requirements, or, “face the consequences”.

The consequences are a mandatory fine issued against the Chair.

Below we provide a refresher on the requirements which were introduced by the

What are trustees required to do?

The Code of Practice 13: “Governance and administration of occupational trust based schemes providing money purchase benefits” provides full detail about the requirements.  The key points to note are:

  • trustees are required to produce an annual chair’s statement regarding governance of the scheme within 7 months following the end the scheme year;
  • in the statement, trustee boards must describe and explain how they have met certain legislative governance standards, as set out in regulation 23 of the Occupational Pension Schemes (Scheme Administration) Regulations 1996;
  • a copy of the chair’s statement must be included within the scheme’s annual report and accounts; and
  • trustees must confirm within the annual scheme return which they complete on the TPR Exchange site that they have produced the chair’s statement.
  • The statement must be signed by the chair; if the statement cannot be signed by the chair because the chair ceased to hold office less than three months before the statement is signed, and there is no current chair, a deputy or acting chair should instead sign the statement; and
  • The first chair’s statement must be produced relating to the scheme year ending on or after 6 July 2015. If the scheme year-end was within the three months following 6 April 2015, trustees are required to include reporting on the period 6 April 2015 – 5 July 2015 within the statement for the following year.

What needs to be included in the statement?

There is a prescriptive list of what needs to be included, examples include:

  • member borne costs and charges across all arrangements within a scheme must be disclosed in the statement;
  • trustee boards must explain their assessment of value for members in relation to charges and transaction costs in the annual chair’s statement;

Some key quotes from the Code of Practice include:

“We expect the statement to be written in such a way as to provide a meaningful narrative of how, and the extent to which, the governance standards have been complied with. We expect trustee boards to clearly set out the measures they have taken to achieve compliance and the details of how they reached their conclusions on the extent of compliance.”

and

We expect trustee boards to regularly discuss key risks and issues, including topics on which they must report in the annual chair’s statement, and the extent to which the scheme is meeting the standards set out in this code

What happens if the Trustees fail?

  • mandatory fines apply where trustees fail in their duty to produce the chair’s statement within the prescribed timeframe;
  • the fines range between £500 and £2,000;
  • Nicola Parish, Executive Director for Frontline Regulations at TPR has been quoted as saying “We will act where trustees demonstrate that they are not complying even with the basic duties we expect“;
  • where an independent trustee is in office TPR will take an even firmer stance, Nicola Parish has stated that “Professional trustees are expected to meet a higher standard of care and to demonstrate a greater level of knowledge and understanding than other trustees“; and
  • trustees are under a duty to notify TPR of breaches of law.  In the recent case the independent trustee notified TPR of its failure to produce the signed chair’s statements by the statutory deadline.  Despite this, TPR issued the maximum fine against the independent trustee as there were no mitigating factors.

How is TPR helping trustees?

  • the Code of Practice provides clear information in terms of the requirements;
  • TPR is sending reminders to trustees via announcements:
    • In June 2015 TPR reminded trustees of their legal obligations after issuing its first mandatory fine in June 2016.  That fine was for £500; and
    • On 16 August TPR issued a further announcement following the issuance of three £2,000 fines.
  • TPR is sending news by email to trustees;
  • TPR has published an assessment template which trustees can complete to assess whether they are running a “quality DC scheme”. TPR states that completing the assessment template can assist with the completion of the chair’s statement.