"Clearer, perhaps tougher... governance is not automatically more effective," wrote Richard Butcher in last week's Informed Comment. Bad decisions can still be made within a decent structure.
In the world of defined contribution, the decision on value is central. It is this that unites the two important consultation responses issued last week: from the Department for Work and Pensions on its charges and governance reforms, and from the Financial Conduct Authority on the make-up of independent governance committees.
Trust-based schemes will be required to demonstrate compliance in the scheme return. The annual "chair's statement" – and for IGCs their annual report – will demonstrate to scheme members how the standards of an adequate default, value-for-money charges and prompt financial transactions have been met.
The National Association of Pension Funds' reply to the consultation on this is telling. “The regulations on chair’s statements should be kept short and high level so that trustees can focus on the issues that matter to their scheme," it said.
"The DWP should amend the draft regulations on chair’s statements to make the list of items to be covered shorter and less prescriptive.”
Illustration by Ben Jennings
The government effectively said no thanks, as it did not want to water down its governance provisions and because there was some flexibility in how these areas are addressed. "We intend to set out more detail about the chair’s statement in guidance," it added. Oh goody.
We know from our reporting that barely over half of DC schemes have reviewed their statement of investment principles within the past three years, despite it being a requirement for trust-based schemes. In that light, an annual call to review value is welcome.
As ever, the flipside is that this will be another compliance drag on well-run schemes, with the risk that smaller, badly run schemes slip under the radar.
The regulator is to provide a helpful guide later this month that will cover the governance standards, appointing a chair and the chair's statement, charge controls and the charge cap, as well as further standards for mastertrusts.
I do not envy its task of reducing the hundreds of pages of past and latest requirements into something manageable.
Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.
