The Pensions Regulator has this week issued two bulletins informing pension scheme trustees of the importance of complying with their basic governance duties.
The Regulator identified in 2016 that trustees’ compliance with some aspects of their basic duties had fallen by 18% in the two years from January 2014 and announced that it would take action to address the issue.
The two basic duties on which the Regulator’s bulletins focus are:
- submission of the annual scheme return; and
- completion of a chair’s statement.
The Regulator is required by law to maintain a register of pension schemes and uses its annual scheme return as the way of capturing this data.
The data contained in the scheme return is used for a range of purposes and, in particular, helps the Regulator and the Pension Protection Fund to calculate their annual levies.
The Regulator’s bulletin confirms that it adopts a zero tolerance approach with trustees who fail to submit a scheme return and that a total of 88 fines have now been issued.
In one example provided by the Regulator, trustees had delegated the submission of their scheme return to an employee who subsequently retired. The scheme return was not submitted and the Regulator issued a fine to the trustees. In another case, information was required by the trustees from a third party before the scheme return could be submitted. This was not provided until after the completion date for the scheme return but the Regulator found that this was no excuse for the trustees’ failure to comply with their duty and issued a fine to the trustees.
Laws were introduced in 2015 which require trustees of schemes which provide money purchase benefits to prepare an annual statement which is signed by the chair of trustees.
The Regulator notes that it has seen high compliance with this requirement but that a number of trustee boards have failed to meet their obligations. In total, 85 fines have been issued to trustees who have failed to comply with these duties.
The two case studies provided by the Regulator provide examples of areas where trustees may fall foul of these requirements. In one case the trustees had intended to wind up their scheme but had not done so within the year. They had not produced a chair’s statement but, as the scheme was still in existence, a statement was required and so the Regulator issued a fine. In the other case, trustees had informed the Regulator that a statement had been prepared but, on further investigation, the Regulator identified that this was not the case.
Ignorance is no defence
The bulletins also reinforce the fact that trustees have a duty “to maintain sufficient knowledge and understanding of their role, their scheme and the law in order to fulfill their duties and avoid regulatory action”.
It can be seen from the data provided by the Regulator that the majority of trustees do comply with these two core duties. However, the fact that a number of schemes fail to comply with even their most basic governance obligations only serves to highlight the complex web of responsibilities which faces a modern trustee board.
In this environment we would encourage trustees to refocus their attention on their statutory obligation to have sufficient knowledge and understanding to operate their schemes and to obtain regular legal, actuarial and investment training in order to help them avoid unwanted regulatory action.
 http://www.thepensionsregulator.gov.uk/docs/chairs-statement-compliance-enforcement-june-2017.pdf and http://www.thepensionsregulator.gov.uk/docs/scheme-return-compliance-enforcement-june-2017.pdf
This blog post was written by Stephen Maynard. For further information, please contact:
Stephen Maynard, associate, Pensions
T: 0161 836 7792