UK – Mandatory governance boards under consideration for UK contract schemes should largely consist of independent trustees, the Department for Work & Pensions (DWP) has stressed in a consultation that repeatedly emphasises the importance of member outcomes above all else.
Launching the long-awaited call for evidence on quality standards within the defined contribution (DC) market – standards that will eventually be used to certify that DC schemes are able to receive small pots as part of the 'pot follows member' programme – pensions minister Steve Webb said that while standards have improved, the department wished to understand how the approaches to governance and investment varied across the market.
Releasing further details of minimum standards for governance, the consultation said it could envisage a board that would be obliged to act in a member's interest, meeting every six months to discuss fund matters.
In a potential reference to the governance arrangements of master trusts with asset management overseen by a company subsidiary, the consultation added: "The governance body must be able to freely exercise its duty to act in members' interests and must be able to explain how any conflicts of interest are handled."
The DWP had previously noted that it would consider the introduction of provider-wide governance boards, which, according to the call for evidence, should have a majority of independent board members.
The government said it would also consider mandating that one-quarter of all board members should be a professional trustee or possess a minimum level of professional education in pensions law or accounting.
In a move that will likely be welcomed by the opposition Labour party, the DWP also elaborated on how it viewed the benefits of scale within DC, hinting that trustees should be forced to consider whether a fund's scale could adversely impact member outcomes.
"People running a pension scheme must consider whether members are disadvantaged by the size of their scheme and take appropriate action if they consider this to be the case," the consultation said.
"We believe legislative minimum standards should be met by all schemes, regardless of their size," it added, questioning whether the minimum standards could potentially lead to consolidation in the pensions sector as seen in Australia after recent reforms.
It also singled out potential benefits of scale, noting that, in future, smaller schemes could either merge or close, transferring assets to a larger fund.
"The key consideration in all cases should be the impact on members, including the practicalities and costs involved in taking such steps."
Repeated references to Australian reforms will please the Labour party, whose policy proposals for improving DC in the UK heavily reference the 2010 review of the Superannuation sector.
Responses should be submitted to the DWP by 9 September.