Changes to the law from 6 April 2015 mean that many occupational pension schemes offering money purchase benefits will have to meet new governance standards.
This legislation now requires:
- The Chair of Trustees to report on compliance with the governance standards in the annual report and accounts;
- The first governance statement must be produced as part of the first annual report and accounts relating to the scheme year ending on or after 6 July 2015.
Trustees will have to declare in their scheme return that the governance statement has been produced. Non-compliance will see trustees being fined between £500 and £2000.
The governance statement will not be scrutinised by the auditor. It will only be read to identify any material inconsistencies with the financial statements. It is important for the Chair to be confident that that the statement is accurate and complies with the legislation to avoid a personal fine of £500 - £2000 and to avoid any liability arising in the future.
We have been working closely with The Pensions Regulator (‘tPR’) and Chairs of trustees and it is clear that there are some sticky areas requiring further clarity. In particular the following governance standards which the Chair will need to sign off on:
- Value for members
- Investment governance
- Core financial transactions
There is no statutory definition of what good value means. There is also limited regulatory guidance currently available on this. So how can the chair satisfy the tPR’s expectations?
The ‘How to’ guidance which is currently being considered by tPR should help trustees however this is not due to be published until late summer.
Our recent webinar on ‘Practical guide to completing your governance statement' gives some best practice examples to help you through some of the trickier areas of the legislation.
Following the webinar chairs should be in a more informed position to take action by:
- agreeing a checklist of contents for inclusion;
- liaising with their service providers to ensure information is available;
- agreeing a timescale for the preparation of the draft governance statement which should be incorporated into the accounts and audit timetable;
- reviewing and signing off at a minuted Trustee meeting prior to the signing of the financial statements to avoid delays and breach of the seven month statutory deadline.
If you would like to discuss this article further, please contact Karen Tasker.