Governance burden for trustees set to increase through new requirements on trustees to report on transfer performance.
The government first announced its intention to cap pension early exit charges through a consultation in July last year. The response to that consultation has recently been issued and the government has now proposed that:
- a cap on early exit charges should apply; and
- there should be a requirement on trust-based scheme to report on transfer performance.
Whilst the government has not (yet) required DB schemes to adopt the same flexibilities as DC schemes – so, in order to access these flexibilities a DB member has to transfer to a DC arrangement – trustees could be forgiven for thinking that the government is applying pressure in other ways.
What has been said so far is that:
- trustees will be required to report regularly on their performance in processing transfers;
- the Pensions Regulator (TPR) will issue new guidance "to ensure that transfers are processed quickly and accurately"; and
- Pension Wise will develop a pension transfers roadmap to help guide members through the transfer process.
It is already a statutory requirement for the member to take independent financial advice in any case where the transfer value exceeds £30,000. The proposed new requirement on transfer performance will need to balance the need to avoid any unnecessary delay with the equally important needs for trustees to satisfy the independent advice requirements and verify the scheme to which any transfer is to be made. There have been several reported cases of pensions liberation already under the current regime, and TPR has, quite rightly, sought to ensure that trustees follow the correct procedures and satisfy themselves that the receiving scheme/arrangement is a legitimate, bona fide, arrangement.
This looks set to increase the governance burden, and workload, on trustees at a time when they are also having to consider other governance issues like integrated risk management and the new DC governance requirements. It also raises the question of who should pay for the extra work involved, particularly where scheme expenses are paid out of scheme assets.