Nearly half of micro and a third of small defined contribution schemes are unaware of the Pensions Regulator’s codes of practice or have never used them, TPR has found, as its latest DC survey also showed that most such schemes don’t know about the new value for members assessments. 

 

The survey, published on Thursday, found that shockingly, 43% of micro and 31% of small schemes admitted they were unaware of TPR’s codes of practice or had never used them.  

 

Unsurprisingly given these figures, smaller schemes were also less likely than larger schemes to be aware that TPR’s codes of practice are due to be replaced by a single code of practice. Just 20% of micro and 28% of small schemes said they were aware of the upcoming single code. 

 

David Fairs, TPR’s executive director regulatory policy, analysis and advice, said being aware of its codes and following them was a very basic expectation on trustees of any scheme regardless of size. 

 

“If trustees cannot meet this very basic standard, they should consider winding up and consolidating savers into a better-run scheme,” he added. 

 

 

Two-thirds of small and micro schemes did not know of the new value for member requirements. TPR said this ignorance of requirements among schemes with less than 100 members is despite it having reminded schemes of their new value for member duties and published guidance to help trustees with it. 

 

The new regulations mean that each year, DC trustees of schemes with less than £100m must compare their scheme’s costs, charges and investment returns against three other larger schemes, as well as carry out an assessment of their governance and administration. 

 

“No saver deserves to be left stuck in a small, poorly governed scheme which doesn’t offer the same value as a larger one. Sadly, our survey shows this remains the reality for some savers, which strengthens our belief that consolidation is the answer for many small schemes,” said Fairs. 

 

He added that where trustees of smaller schemes do not show that they provide value, the regulator expects them to either wind up or take prompt action to make improvements. 

 

Smaller DC schemes are far behind larger ones in allocating time or resources to assessing financial risks and opportunities relating to climate change, the regulator has also discovered. 

Every master trust and nine in 10 large schemes had allocated time or resources to assessing climate change risks and opportunities, but only about half of medium schemes (55%) and fewer than one in 10 small schemes (9%) had done so. Among micro schemes the proportion was even lower at just 5%. 

 

 

All schemes of all sizes should be well-governed and have sufficient access to resources and expertise to deliver good outcomes for members, agreed Joe Dabrowski, deputy director policy at the Pensions and Lifetime Savings Association.  

 

The PLSA is pleased that across all elements, TPR has found the vast majority of schemes are on top of all the regulatory developments in the industry, he said. 

  

“It is however disappointing to see the data indicating that many schemes with less than 100 members seem to be unaware of the value for money assessments, TPR’s Codes and have not fully assessed climate risks,” he added but pointed out that the research took place before VfM regulatory changes came into force, and several years before mandatory TCFD regulations fall on smaller schemes.  

 

Nonetheless, “there is clearly a lot of room for improvement for this group of small schemes”. 

 

Dabrowski suggested the figures reflected a lack of effectiveness of the regulator, saying targeted communication to these schemes, which the regulator has often found hard to reach, should be improved. 
   

 

The numbers are no real surprise as many small DC schemes were set up and “just exist” without any governance, said Ian McQuade, a director at governance experts Muse Advisory. “They are not really governed so whether members are getting value is another matter,” he said. 

  

In order to improve the status quo, TPR would need to have the resources available to follow up on these schemes and possibly put pressure on providers to help drive the changes required, he argued. McQuade said one reason schemes frequently stay open is because of guaranteed annuity rates. 

  

Consolidation is likely to encourage schemes towards master trusts, he noted – which means not all providers have an interest in encouraging consolidation. McQuade said: “For some providers that will mean showing clients the door, which doesn’t work for their business models.”