Pension scheme governance gaps between small and large schemes, Digi Mart USA News: Just 27 per cent of small defined contribution (DC) pension schemes have an effective system of governance (ESOG) and have completed an own risk assessment (ORA) or governance review, compared with 94 per cent of large DC schemes, according to research from The Pensions Regulator (TPR).
The regulator’s inaugural Trustee Survey assessed governance practices across defined benefit (DB) and DC schemes and revealed significant disparities in governance standards. Smaller schemes were generally less likely to have formal arrangements in place to identify and manage risks to members’ savings.
The research found that 89 per cent of master trusts had also completed the relevant governance and risk review activity, highlighting the gap between smaller schemes and their larger counterparts. TPR warned that the findings demonstrated the need for trustees to strengthen their governance arrangements, skills and capabilities as they face increasingly complex decisions, including whether consolidation would deliver better outcomes for members.
Using a governance indicator scored from zero to 100, the research found that master trusts achieved the highest average score of 88, followed by large DC schemes at 83 and large DB schemes at 80. In contrast, small DC schemes recorded an average score of 49, while micro DC schemes scored just 39.
Overall, DB schemes achieved an average governance score of 72, compared with 47 for DC schemes, although the gap narrowed significantly when micro schemes were excluded. The research also found a link between professional trusteeship and stronger governance: schemes with a professional trustee achieved an average score of 74, compared with 56 for those without.
Schemes with an individual sole trustee recorded an average score of just 37, compared with 79 for those using a professional corporate sole trustee. Despite these differences, TPR found that trustee training was relatively well established across the market, with 90 per cent of DB schemes and 77 per cent of DC schemes (excluding micro schemes) reporting mandatory training.
However, weaknesses remained in trustee recruitment and succession planning, with fewer than half of DB and DC schemes reporting that they had a succession plan in place. The survey also raised questions about how much member outcomes drove trustee decision-making.
Just 29 per cent of trustee boards said improving member outcomes was the primary driver of their decisions, while 55 per cent said member outcomes influenced decisions but were balanced against other priorities, including regulatory compliance and costs. A further 11 per cent reported that compliance and risk management took precedence over member outcomes.
The research also suggested that value for members (VFM) assessments were not consistently translating into improvements for savers. Among DC schemes that had conducted a VFM assessment or review, just 12 per cent reported measurable improvements in member outcomes as a result.
This fell to zero among small DC schemes, with 47 per cent saying their assessment raised awareness without leading to change and 46 per cent reporting no noticeable impact.
Meanwhile, although around seven in 10 schemes had compared their governance arrangements against TPR’s General Code, this fell to just 33 per cent among small DC schemes.
TPR executive director of strategy, policy and analysis, Richard Knox, 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.”
Knox urged trustees to review their governance arrangements and ensure that their decision-making remained focused on delivering positive outcomes for members. “We expect all trustees to review their governance against the General Code and keep member outcomes at the centre of their decisions,” he added.
TPR said it would use the findings as a baseline to monitor governance improvements as the pensions market undergoes further consolidation and regulatory reform.
