Survey finds DC still DB’s poor relation
Trustee boards still aren’t focusing sufficiently on defined contribution matters - that’s the message from Baker Tilly’s trusteeship survey, which was published last week.
Of the hybrid scheme trustees surveyed by the accountancy firm, three-quarters said they spent more time on defined benefit matters than on defined contribution. Only a quarter devoted equal time to DB and DC. None of the hybrid scheme trustees surveyed reported paying more attention to DC than DB issues.
And when asked to list their priorities in board meetings, discussions of DC matters came bottom of the list. Half of trustees of hybrid schemes surveyed reported that they spent less time discussing DC matters than any other option offered.
56% gave DC matters a low priority ranking when asked how much time should be spent on it
Perhaps more worryingly, given the mutation of pensions provision, more than (56%) gave DC matters a low priority ranking when asked how much time should be spent on it.
Hybrid scheme trustees still felt more at risk from claims regarding the DB aspects of their fund (35%) than the DC elements (24%), although 41% weighed the risks as equal. The biggest priority for trustees was discussions with advisers.
The challenge for trustee boards is to adjust their standards of governance in the new environment
Inadequate focus on DC governance is a well-worn issue for trustees, but the report expresses disappointment that it is still an issue in 2014. It concludes: “The challenge for trustee boards is to adjust their standards of governance in the new environment.”
Ian Bell, head of pensions at Baker Tilly, expressed surprise that the focus on DC was not greater, particularly given The Pensions Regulator’s focus on DC over the past couple of years. He argued that while the priorities highlighted by the report may have been understandable when DC was first emerging, it was less so now.
He said: “Typically active members will be members of the DC section of the scheme and the DB is probably closed to future accrual, which is just managing a legacy arrangement. Now is the time for trustees to start changing their focus.”
He added that rather than being relegated to the last item on the board agenda, boards should deal with DC matters first. Another mechanism for giving due weight to DC was the establishment of a separate sub-committee, which he argued should include representation from the employer, given the importance of their input on issues such as communication. But while a separate DC sub-committee is relatively common on big schemes, Bell said it had yet to trickle down to smaller funds.
However, there are sound reasons for trustees to continue to focus on DB issues. Susan Andrews, director of Ross Trustees, commented that even if schemes are closed, there will be a myriad of highly technical matters trustees will have to deal with, such as the employer’s covenant.
A brave new pensions world may be emerging, but at grassroots level, many trustees clearly still have their hands full dealing with the problems of the old one.
Further survey findings
Eighty two per cent of trustees agreed that demands on them are increasing, including 31% who said they were growing rapidly.
Nearly three quarters (72%) of all respondents said they had used the the Regulator’s Trustee Toolkit within the last two years, while 21% said they’d used it in the past two to five years. Seven per cent reported that it was more than five years since they’d used the toolkit, or that they’d never used it.
Over one quarter of trustees said they had not read their scheme’s rules since they were appointed.
Fraud was identified as trustees’ lowest listed concern
Scheme funding and longevity were identified by trustees as their biggest worry with 73% of respondents rating it 4 or 5 on a scale from 1 (least) to 5 (most) concerned.
Fraud was identified as trustees’ lowest listed concern, with 69% of respondents ranking it at 1 or 2.
Maladministration was identified by trustees as the biggest risk in terms of potential claims, but just 22% of respondents named administration as a high priority issue at board meetings.