These questions can be categorised into four broad areas:
1. What are the new responsibilities? / What do trustees have to do?
In April 2015 the Occupational Pension Schemes (Charges and Governance) Regulations introduced new responsibilities for trustees with the aim of protecting members of occupational pension schemes that offer money purchase benefits.
The new measures mainly relate to charges and governance and they assign new responsibilities for trustees of occupational schemes.
The key things trustees now need to do are:
The first requirement to publish an annual governance statement is for the first scheme year end after 6 July 2015. The period that needs to be covered in the first statement is 6 April 2015 to scheme year end. Failure to produce an annual governance statement could lead to fines of between £500 and £2,000.
2. What information needs to be included in the annual governance statement?
Trustees need to update their scheme annual report and accounts to include an annual governance statement describing how governance standards apply. In particular this statement needs to include:
The statement must be signed by the Chair, on behalf of the trustees.
3. Why have the trustees got to do this?
Trustees have a legal duty to act in the best interests of the scheme members and legislation requires you to carry out a value for money (VFM) assessment. Trustees now have an obligation to make reference to the value for money your scheme provides, within your annual report
Failure to meet the new requirements, in particular the inclusion of the governance statement could lead to fines of up to £2,000.
It is your responsibility as trustee to carry out a value for money assessment for your schemes. You will probably already be aware of these responsibilities, but full information on your responsibilities is available from The Pensions Regulator’s (TPR) website.
4. When have trustees got to do this by?
The first chair’s statement must be produced as part of the first annual report and accounts relating to the scheme year ending on or after 6 July 2015. If your scheme year-end date is 31 December 2015, your first statement will cover 6 April 2015 to 31 December 2015.
If your scheme year-end is within the three months following 6 April 2015, you’re still obliged to prepare a chair’s governance statement covering this period. However, as this would result in you writing a statement covering a very short period of time, you’re required to include this short period within the statement for the following year.
All subsequent chair’s statements will have to be completed within seven months following the end of your scheme year.
Details can be found on the TPR website: www.thepensionsregulator.gov.uk/trustees
5. Where can I get more information about the new trustee responsibilities?
Read more information on this website on trustee liabilities.
The TPR also have useful information on their website: https://www.thepensionsregulator.gov.uk/en/trustees
6. What new information needs to be included in the annual scheme return to the Pensions Regulator (TPR)?
New information for the 2015 return includes:
There’s information on the TPR website: www.thepensionsregulator.gov.uk/trustees
7. How do I get a Chair of trustees?
The Charges and Governance regulations includes a requirement that certain schemes must appoint a chair of trustees, if they don’t already have one. In a trust scheme, the Chair could be an individual trustee or a professional trustee body. Where there is a corporate trustee, the Chair could be a member of the board of directors or trustee corporation.
Some schemes are exempt from this new requirement, in particular:
Where a scheme is required to appoint a chair, trustees must ensure that this obligation is met within three months from the later of:
a. the legislation coming into force;
b. the scheme being established.
The legislation also requires trustees to provide the TPR with the name of the chair, and this should be done via the scheme return. Trustees and those completing scheme returns on behalf of trustees will need to establish whether their scheme is required to provide this information, and where this is the case, pay particular attention to the instructions on the scheme return screen about how to complete the details of the chair.
8. Who is responsible for carrying out the value for money review for occupational schemes?
9. If a scheme is paid up, do the trustees still need to carry out a value for money review?
10. Do the new trustee requirements extended to defined benefit (DB) schemes?
No, they relate specifically to defined contribution (DC) schemes/arrangements.
11. What will happen if the trustees don’t do anything?
The trustees will be breaching the law. If you or another person responsible for administering the scheme fail to comply with the legal requirements, the TPR may select from one or more enforcement options. These range from advice letters, warning letters, statutory compliance notices and monetary penalties, to criminal prosecution.
There’s more information on the TPR website: www.thepensionsregulator.gov.uk/trustees
12. What help can you give trustees considering whether the costs and charges borne by scheme members are good value for money?
TPR have provided guidance on this for trustees. These can be found here: http://www.thepensionsregulator.gov.uk/guidance/guidance-dc-schemes.aspx
13. Do trustees need to tell the TPR that they have done a value for money assessment?
Our understanding is that trustees don’t need to notify the TPR, however we would encourage you to have a read through the TPR regulations to satisfy yourself of what is required.
1. Are the scheme charges capped?
Retirement Solutions Company Pension Plan - if the scheme is an automatic enrolment / qualifying scheme with us then the charges have been/will be capped at 0.75% a year from 6 April 2015 or the employer’s staging date if later.
Crest Secure or Crest Growth plans - these plans can’t be used as an automatic enrolment or qualifying scheme and therefore the charge cap doesn’t apply.
2. Where can I get more information about the default investment?
Information on our default options can be found in our :Our Default Options – Roles and responsibilities guide and a list of the funds and strategies available to our workplace pensions can be found in our Investment Options guide.
There’s also information about our default investment options and investment governance here:
3. How does Crest Secure work?
The Crest Secure fund is similar to a with profits fund but with a lower exposure to the stock market. The fund invests in a range of different asset types including fixed interest stocks, equities and property. The aim of the investment strategy is to maximise the long term return on investments whilst meeting the fund’s guaranteed liabilities.
A growth rate is declared each year and equivalent bonuses are added to the fund’s value. The rates declared reflect the actual performance of the underlying assets, after allowance for the expenses incurred and after a smoothing1 adjustment. The smoothing1 adjustment means the declared growth rates are more stable than the rate of return on the underlying assets.
1With smoothing a proportion of the actual investment growth earned during good years is held back and then applied to top up the return in years with poor performance. This should result in a smoothed effect on the increase of the value of the investment, as opposed to fluctuations that would normally occur in the daily price for other stocks or shares.
The declared standard growth rate for each of the last 5 scheme years are set out in the table below.
|Declared standard growth rate for scheme year|
*Provisional declared standard growth rate
4. How does Crest Growth work?
The Crest Growth contract is a unit-linked contract where the trustees decide which fund(s) to invest in on behalf of the members. The individual accounts within the scheme are only notionally allocated to the members and it is for the trustees to determine whether the investments offer value for money as part of the trust arrangement(s). Fund performance information can be found on our website at: employer.royallondon.com/ fundperformance
The charges that apply to a Crest Growth scheme will depend on the specific characteristics of the scheme, but the charges can be summarised as:
1. Contribution charges:
2. Ongoing fund value charges:
Fund based renewal commission (FBRC) charge that applies for the term of the contract. This only applies if FBRC is payable to an adviser.
Trustees should refer to the scheme summary we enclosed with the letter we sent them in December 2015 for details about the specific charges applying to their Crest Growth Plan.
1Returns assessed based on the Compound Annual Growth Rate (CAGR) over 3, 5, 10 and 15 years to 31 January 2016.
1. What has Royal London done about assessing value for money?
We did our own internal review of value for money being provided from our workplace pension contracts. We completed this review in early 2016.
This review looked at both at charges applying to these contracts and the benefits provided to the members, for example investment performance and quality of customer service. We believe our occupational pension schemes are currently delivering value for money and we are not proposing to make changes.
We would remind you that it is the trustees’ responsibility to review the arrangements in place for the members and consider whether their scheme offers overall value for money. We are not in possession of all the information necessary to consider which course of action is most appropriate for the membership taking into account all of their circumstances. It is therefore a decision for the trustees to make regarding the best course of action.
If you are not happy with the results of the value for money review it is up to you as a trustee to decide what action you should take.
2. What changes are you making to Retirement Solutions schemes?
We have completed the review of our more modern contracts (Retirement Solutions) and are not proposing to make further changes to this as we believe it already delivers good value for money to the members. However, any schemes used for auto enrolment will have the member charges capped at 0.75% a year for the default investment and commission charges, FAF charges and consultancy charges, if applicable, will be/will have been stopped or reduced from the employer’s staging date. You may wish to take account of this when forming your own views.
3. What changes are you making to your legacy / Crest occupational schemes?
We’ve completed the review of legacy occupational schemes – Crest Secure Plan and Crest Growth Plan. We believe the both of these plans are delivering value for money and are not proposing to make any changes. See the answers to the ‘How does Crest Secure work’ and ‘How does Crest Growth work’ questions for information on the charges and benefits.
1. Can trustees wind up the scheme?
Yes. Depending on how long this takes to complete, this may or may not allow trustees to avoid the new rules. We would strongly urge trustees to take financial and/or legal advice around this.
There is information on the TPR website about winding up schemes effectively: https://www.thepensionsregulator.gov.uk/en/trustees/wind-up-or-transfer-your-scheme
Exit charges may apply if the scheme is wound up.
2. Can trustees transfer the scheme?
Yes. Exit charges may apply if the scheme is transferred, including a transfer to our Retirement Solutions contract. Please note, if the existing scheme includes guaranteed minimum pension (GMP) rights it may not be possible to replicate this on transferring the scheme.