Pension Governance: Why it’s important

Following the introduction in the Pensions Act 2008, of Automatic Enrolment, most employers have now staged and set up their Qualifying Workplace Pension scheme. There is a misconception that Auto Enrolment is finished, and it is back to business as usual. Unfortunately, its not that simple. The Pension Regulator (TPR) also requires employers to make sure that their workplace pensions are monitored regularly and deliver good retirement outcomes for members.

TPR wants to see all pension schemes encompassing 6 key elements, the first 3 listed below are mostly relevant for scheme set up whereas elements 3-6 cover activities that will remain relevant throughout the life of a scheme. TPR believe that if schemes follow these 6 principles in their design, set up and ongoing operations it will help ensure the scheme delivers ‘good member outcomes’.

1. Durability, Fairness and Delivery: TPR wants to see that a company pension offers a suitable default fund, carries transparent costs and charges and has steps in place to protect its members’ pension assets against loss of their savings.

2. Establishing a framework: TPR wants to see that all parties involved in managing a company pension scheme have clearly defined roles and that they continually carry out these roles to a highly competent level. The parties involved could include the employer, the chosen pension provider and the appointed advisers.

3. Accountability: Once the roles for each party have been defined, TPR expects each party to be accountable for their part in the ongoing management of the pension. TPR expects each party to have the required resources to carry out their role efficiently.

4. Ongoing Pension Governance: Due to the long-term nature of pensions, TPR wants to ensure that the scheme continues to have excellent ongoing pension governance and that internal controls and monitoring are in place to meet its objectives so that the best interests of the member are prioritised.

5. Record Keeping: TPR regards accurate record keeping as being of paramount importance so that simple and efficient reference can be made to past events.

6. Communication: TPR want to see that communication to members is clear and concise throughout the life of the scheme. This communication covers the various stages of a pension, namely joining, investment decisions and converting a member’s pension to an income including the promotion of the Open Market Option.

This is in addition to re-enrolment every 3 years and dealing with opt-outs and opt ins. I expect you are thinking when we are supposed to find the time to do this as well as running a business. You are not alone, TPR has recently published research carried out by OMB in the report “Ongoing Duties Survey-Summer 2018” which highlighted in the report that 12 % of employers found it difficult keeping up with their duties. 27% of these employers had problems keeping up with regulations and 31% finding the time.

In addition, of the employers who worryingly were unaware of all their ongoing duties, specifically the three ‘live’ requirements of keeping records of all automatic enrolment activities, monitoring the ages and earnings of staff to check their eligibility and for enrolling and writing to eligible staff, when these employers were informed of these duties, between 20% to 38% of them were not confident that they could complete each of these duties.

Why is Pension Governance So Important Now?

Well TPR is carrying out spot checks to ensure employers are complying with their pension duties. The checks will help TPR understand whether employers are facing any unnecessary challenges that they can help them with, such as helping them improve their systems but they will also highlight employers who have not taken the required steps to become or remain compliant, paving the way for enforcement action.

Darren Ryder, TPR’s Director of Automatic Enrolment, has said: “The vast majority of employers are continuing to provide their staff with the workplace pensions they are entitled to and are keeping up with contributions after that point. These visits help us to identify why some are not, so we can take action where we need to.

“Automatic enrolment is not an option, it’s the law. If employers are not complying with the law, we will use our powers to make them comply – which could mean the unwanted Christmas present of a fine or even prosecution.”

In 2019, TPR have carried out country-wide inspections that were targeted at employers where TPR data and intelligence teams identified a risk of noncompliance. As a result, 74% of spot checks revealed breaches of pensions legislation, with 76% of these resulting in enforcement action.

The TPR has taken enforcement action against over 4,000 employers failing to carry out their re-enrolment duties in this year alone, resulting in over 800 penalty notices and fines being issued for continued non-compliance.

The key point is Pension Governance can’t be ignored. Every employer needs to have a clear pension governance strategy which demonstrates to the TPR compliance with Auto Enrolment legislation in case of a spot check from the TPR.

We would strongly recommend the Pension Governance process is outsourced to a third party such as Wingate to demonstrate the robustness and independence of the process and continued compliance with TPR regulatory requirements. This could avoid an unexpected fine, backdated contributions and the additional administration involved in remedying any errors. Please contact Wingate if you would like to see how we can assist you with your ongoing pension governance.