The Pensions Regulator (TPR) has urged small pension schemes to strengthen their governance arrangements, after finding that just 27% of small defined contribution (DC) schemes have formal governance arrangements in place.
This compares with 94% of large DC schemes and 89% of master trusts, highlighting a significant gap between smaller and larger schemes.
The findings form part of TPR’s first survey measuring trustee governance practices across the pensions market. The regulator said the research would establish a baseline as reforms reshape the pensions landscape and increase demands on trustee boards.
TPR said trustees must ensure they have the governance, skills and capabilities needed to make increasingly complex decisions in members’ interests, including actively considering the future strategic direction of their schemes and whether consolidation would be in members’ interests.
The research, which surveyed hundreds of trustees across both DC and DB schemes, has also found that trustee training is widely established across the market, with mandatory training reported by 90% of DB schemes and 77% of DC schemes.
Larger schemes and those with professional expertise were more likely to achieve higher governance scores, while seven in 10 schemes said they benchmarked their governance against TPR’s general code.
However, the research also highlighted differences in how trustee boards approach decision making. Only 29% said improving member outcomes was the primary driver of their decisions, while 55% said member outcomes influenced decisions alongside other priorities, including regulatory compliance and cost.
Succession planning was another area of concern, with fewer than half of DB and DC schemes, excluding micro schemes, reporting that they had a trustee succession plan in place.
TPR said the findings present new expectations for trustees to benchmark their governance against its general code, strengthen succession planning and board development, and ensure governance and risk management arrangements are supporting good outcomes for members.
Richard Knox, executive director of strategy, policy and analysis at TPR, said: “The decisions facing trustees are becoming more complex and consequential. That is why the bar on governance standards is rising. Every trustee board should be asking themselves whether they have the skills and experience needed to make good decisions now and in the future.
“We expect all trustees to review their governance against the General Code and keep member outcomes at the centre of their decisions,” he said.
