Fines against two master trust schemes have been upheld in court after the Pensions Regulator (TPR) found they did not include required information in its chair’s annual statement.
TPR fined EC2 Master, trustee of Autoenrolment.co.uk, £2,000 ($2,601, €2,312) after finding its chair’s statement for 2015/16 non-compliant in five areas, and it also fined the trustees of Moore Stephens Master Trust after finding its chair’s statement for 2016/17 to be non-compliant in three areas.
The chair’s statement, an annual governance statement signed by a trust’s chair, must provide a meaningful narrative of how, and the extent to which, the governance requirements have been complied with. The annual statement should cover:
- The default arrangement and its governance;
- The processing of core financial transactions;
- Disclosure of costs and charges (including transaction costs) relating to the default arrangement and other arrangements;
- Trustee knowledge and understanding;
- The trustee board and member representation (for master trusts only); and
- The assessment of value for members
Cases
The judges on both tribunal cases said that penalties for non-compliance were mandatory, and as the chair’s statements were non-compliant with the law TPR was right to issue the fines.
EC2 Master’s appeal was turned down by First-Tier Tribunal judge David Hunter QC, who upheld the penalty imposed by TPR.
The judge said the requirements stated schemes should not simply prepare an annual governance statement, but “prepare a statement containing a considerable amount of clearly specified and detailed information”.
In the other case, First-Tier Tribunal judge David Thomas found that the Moore Stephens Master Trust chair’s statement did not satisfy the requirements in one aspect (encouragement of members to express their views to trustees) but was compliant in the other two (trustee knowledge and understanding and core financial transactions).
Thomas reduced the fine from £2,000 to £500 (the statutory minimum).
The judge ruled that as the scheme was a master trust with a professional trustee, and ran schemes for multiple employers, “some penalty” for the failure was “therefore appropriate”.
Expect high standards of trustees
Nicola Parish, executive director for frontline regulation at TPR, said: “Annual chair’s statements are an essential way to show pension savers that their scheme is being properly governed and will deliver the retirement benefits they are promised.
“That’s why it is the law for trustees to produce chair’s statements and make sure they contain all of the necessary information.
“We are pleased that the judges in these cases agreed that under legislation, a mandatory penalty applies to chair’s statements which are not compliant.
“As these cases clearly demonstrate, we are prepared to defend our penalties in court. We continue to expect high standards of trustees and will take action when chair’s statements are not compliant with the law.”
Exceptions
Some schemes do not have to produce a chair’s statement and are not legally required to meet the governance standards on which it reports.
Schemes where the only DC benefits provided are attributable to AVCs do not need to produce a statement.
In addition, other types of scheme to which exemptions apply are:
- Relevant small schemes;
- Executive pension schemes;
- Public service pension schemes;
- Schemes which are not tax registered, provide only death benefits, or is not established in the UK and has no trustees resident in the UK; and
- Single member schemes
