Almost 5m UK public service pension savers are in plans that do not have a complete set of basic governance features in place, the Pensions Regulator (TPR) has warned.
Although 58% of the 191 schemes that responded to TPR’s annual governance survey – out of a possible 207 – have all of its key processes (see below) in place, 29% have yet to adopt them fully, the regulator added.
As a whole, the sector provides pensions for more than 16.7m civil servants, teachers and other local government workers, including the police, armed forces and members of the judiciary.
Speaking at the annual Pensions and Lifetime Savings Association (PLSA) local authority conference in Gloucestershire this week, Lesley Titcomb, TPR’s CEO, said the annual survey had found “a number of gaps around good governance”.
It was not all bad news, she said: “We’ve been able to see significant improvement fairly quickly around data management, communications and internal controls.”
The Local Government Pension Scheme – which accounts for a significant portion of the UK’s public sector pension system – was a leader in terms of governance standards, Titcomb said, and urged conference attendees to “stay ahead of the pack”.
According to TPR’s public service governance and administration survey, more members received their annual benefit statement on time in 2017, with 60% of schemes meeting deadlines – up from 43% in last year’s survey.
However, TPR expressed “doubts about the commitment shown towards scheme governance”. The report revealed that 43% of schemes held fewer than four meetings a year between scheme staff and pension boards.
“We don’t think that provides sufficient opportunities for pension boards to effectively carry out their role,” Titcomb told the conference.
Many schemes had “solid governance processes in place”, she said, “and we would like to see all adopt robust systems, which need to be operated, adhered to and maintained”.
Titcombe said it was “disappointing” that monitoring record-keeping remained problematic. “Compliance remains patchy,” she added.
Almost a fifth of legal breaches last year among public service pension schemes were caused by a failure to maintain records or rectify errors.
In her closing remarks to the PLSA conference, Titcombe emphasised that the regulator wanted to be “a critical friend and not a wagging finger”.
“But if it’s needed, we will be tougher,” she warned. “We will not shy away from punitive action when it is required.”
The Pension Regulator’s six defined contribution principles
Principle 1: Essential characteristics
Schemes are designed to be durable, fair and deliver good outcomes for members
Principle 2: Establishing governance
A comprehensive scheme governance framework is established at set up, with clear accountabilities and responsibilities agreed and made transparent
Principle 3: People
Those who are accountable for scheme decisions and activity understand their duties and are fit and proper to carry them out
Principle 4: Ongoing governance and monitoring
Schemes benefit from effective governance and monitoring through their full lifecycle
Principle 5: Administration
Schemes are well administered with timely, accurate and comprehensive processes and records
Principle 6: Communications to members
Communication to members is designed and delivered to ensure members are able to make informed decisions about their retirement savings
Source: The Pensions Regulator