Thursday, 21 June 2018

    Trustees must make sure that service is up to scratch

    Today’s DC trustees have plenty of food for thought, argues Helen Ball, head of DC at Sackers & Partners LLP

    Trustees today are like the maîtres d’hotel in restaurants. They need to understand the menu being offered to members, liaise with the chef who helps to set it, ensure service is up to scratch and yet be first in line to take the blame when the chosen dish does not live up to expectations.

    restaurant

    It’s a tricky role that requires a sharp eye and attention to detail. To ensure a smooth service over the next 12 months, defined contribution scheme trustees who wish to preserve their good name should be targeting five key areas.

    1) The Chair’s annual statement

    As the highlight of the ‘governance calendar’, this is the document upon which reputations will be won or lost. Although it is sometimes viewed as a necessary, yet uninspiring, adjunct to the annual report and accounts, it has recently been elevated in importance.

    A half-baked statement is likely to result in a fine of up to £2,000”

    The Pensions Regulator has started to take a firmer line regarding its content and has issued new guidance on what it expects to be included, with penalties being issued against trustees whose statements are found wanting in detail.

    A half-baked statement is likely to result in a fine of up to £2,000 (plus reputational damage), so it would be wise to make certain these pass the legal test before they are allowed to leave the kitchen.

    2) Investment reviews

    Sometimes the menu needs a refresh. Serving up the same old investment options isn’t the best way forward, given the requirement to review investment strategy at least every three years (or sooner in the event of big membership changes).

    Make sure you are offering your members good value for the investment costs they are paying”

    Advice is becoming more sophisticated, and attention is turning to target retirement ages (linking them to increasing state pension ages), hedging against currency risks, illiquid assets and ‘marginal gains’ that can all add up to better member outcomes.

    There is surely more to come on this over the next few months, as new ideas and services come to market in the wake of the 2015 changes. It is important to keep up to date with the latest news, to make sure you are offering your members good value for the investment costs they are paying.

    3) Guidance and retirement options

    Members should not be choosing from a menu that they don’t understand. With concern growing about scams and members cashing in too early, members need appropriate guidance and support.

    Whether the buck stops with the employer or the trustees on this remains to be seen, but some employers and trustees are now  working together on ‘set menus’ for members to choose from at retirement. It is early days on this, and there are some pitfalls to avoid, in terms of mis-selling.

    Members should not be choosing from a menu that they don’t understand”

    However, trustees could at some point be asked to show what they are doing to help their members make appropriate choices (such as warnings about the risks of drawdown), so make sure you have this covered.

     

    4) Costs and charges/ transparency

    Everyone assumes that the price of a meal will be shown on the menu, and that there will be no added extras.

    This has, to date, been rather difficult for trustees to establish, because they haven’t had access to much information about transaction costs, which can affect member outcomes.

    Trustees will need a better understanding of the kinds of transaction costs that they face”

    From January 2018, investment providers will be required to disclose information around transaction costs to trustees and independent governance committees who, in turn, will be required to share this with members.

    The details of the new requirements have yet to be finalised, but the aim is to create a market where members demand such information, so that they appreciate the true cost of what they are paying for.

    This requires a cultural shift for all parties, so trustees will need a better understanding of the kinds of transaction costs that they face and how these are paid for.

    5) Mastertrusts

    Over the next 12 months, the need to obtain a Michelin star (or, in pension terms, ‘authorised mastertrust’ status from the Pensions Regulator) will begin in earnest.

    The authorisation regime is due to start with effect from autumn 2018 and, in the meantime, there will be consultations on draft regulations which will set out capital adequacy requirements, authorisation procedures and higher governance standards for those schemes to meet.

    Some employers could be more likely to hop from one mastertrust to another in the future”

    Employers will wish to check whether they are using a suitable vehicle for their employees and trustees who are seeking to move members into mastertrusts (either individually, or on a bulk basis) will need to understand the new requirements.

    There has been a suggestion that some employers could be more likely to hop from one mastertrust to another in the future, switching providers more often. What this means for individual members remains to be seen, but trustees and employers will need to be aware of the basic requirements, so that they can understand the different options available and explain them appropriately to members.

    So there is plenty for trustees to be focusing on (and we haven’t even mentioned data protection changes, the outcome of the auto-enrolmentreview, and many others…).

    Best of luck!

    This article first appeared in the DC Landscape research report. To read the full report, click here

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