We have previously blogged on the requirement for defined contribution (DC) schemes to provide an annual Chair's Statement, including commenting on how detailed the statement should be (you can find those earlier comments here). The Department for Work and Pensions (DWP) has since completed its scheduled post-implementation review of aspects of the defined contribution governance regulations, including the Chair’s Statement, to assess whether the legislation is meeting its objectives and whether there have been any unintended consequences.
The review established that, in relation to the vast majority of provisions, the policy objectives are being achieved. However, it also identified that the current approach of using a single instrument – the Chair’s Statement – to try to achieve multiple policy goals in respect of scheme governance and member engagement is not working. In particular, the review suggests that the Chair’s Statement is too long, complex and costly to produce and concerns have been raised that it has become a “tick-box exercise” due to the mandatory fine imposed by The Pensions Regulator (TPR) for non-compliance.
At the outset, it is of course important to be clear if the scheme in question is subject to the requirement to prepare a chair’s statement (i.e. is it a "relevant scheme" as defined in the regulations). Broadly, the requirement applies to most schemes with money purchase benefits other than additional voluntary contributions (AVCs). However, in our experience, tricky questions can arise as to whether the requirements apply at all or continue to apply, after a particular scheme event. For example, is a defined benefit (DB) scheme with DC underpins included? What about a scheme that's likely to cease to be a relevant scheme prior to the end of the relevant period? Or what about a scheme that was a relevant scheme but that has transferred all of its DC assets to another scheme (such as a master trust vehicle) during the scheme year? Given that the relevant legislation and TPR guidance on what constitutes a "relevant scheme" for these purposes and how that would be affected by any of the aforementioned events is far from clear and that fines for non-compliance with the Chair Statement requirements are mandatory, we strongly recommend you seek legal advice (which may also include seeking clarification from TPR) if you are in any doubt about whether your scheme is required to prepare a Chair's Statement.
Ultimately, the DWPs review concluded that the overall purpose of the Chair’s Statement now needs to be reconsidered. Further work will be required between DWP, the TPR and industry representatives to ensure common agreement on content. In particular, the review suggests a review of whether the twin objectives of regulatory reporting to TPR and informing and engaging with scheme members would be better served by two separate documents (for example, one member-facing and one to record the scheme's regulatory activity) rather than combined in a single statement. Whilst not within the scope of the review, the DWP has also suggested that consideration should be given to the legislative requirement for TPR to issue mandatory fines in relation to the Chair’s Statement and whether there should be an amendment to allow TPR to use discretion.
There is currently no timescale for the next steps but any changes might interact with TPR's recent consultation on its new single code of practice which closed on 26 May 2021.
If you would like to discuss the requirements for producing a Chair's Statement and how these might apply to your scheme, please get in touch with your usual contact at Brodies.
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