Trustees of defined contribution (DC) pension plans are struggling to meet the Pensions Regulator's DC code of practice, research says.
According to analysis of compliance levels by Towers Watson, trustees are in-line with, or outperforming, the regulator's expectations in most areas. However, there are still areas of governance, administration and communications that are proving difficult
Many trustees are failing to meet guidelines for transparency of costs and charges for members and assessing value for money, a year after the introduction of the code, Towers Watson says.
'Trust-based defined contribution pensions plans are going through a period of radical change, not only in terms of how benefits can be taken by members but also how they are expected to be governed by trustees,' said Towers Watson senior consultant Nick Cook.
'While many plans may already be broadly demonstrating the DC quality features that the Regulator expects, there are a number of new areas, such as assessing value for money, that even the most developed and sophisticated plans will need to take additional action on to demonstrate good practice.'
The study looked at 120 DC plans with total assets of £12.5bn and 480,000 members. It found that on average, trustees were outperforming the regulator's expectations in areas such as reviewing investment fund performance, investment objectives and the default strategy, investment decision making, avoiding conflicts of interest and understanding trustees' duties.
It also revealed that trustees' own targets for future governance tended to be higher than the regulator's expectations in almost all areas.
Cook also warned that the introduction of new minimum governance standards for DC plans next April would require the regulator to update its code.
'This will result in greater and more onerous requirements in some of the areas that we have seen trustees are already struggling with, such as assessing value for money,' he said.
'Compliance levels are set to get tougher and trustees need to address any issues they have sooner rather than later as this issue is here to stay.'