From 1 October 2020, DC schemes with at least 100 members must comply with a new legal obligation, arising from the Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2019, to produce an implementation statement in the scheme's next annual report and accounts. The new requirements form part of a number of measures introduced in recent years which oblige schemes to do more to demonstrate transparency, public accountability and good corporate governance. With increased pressure on DC scheme trustees to meet these governance requirements successfully and efficiently, many trustees will be wondering how to go about satisfying their implementation statement obligations.
This article highlights some of the key questions for trustees to consider when producing their scheme's first implementation statement.
What should be included in an implementation statement?
To aid trustees in the production of implementation statements, the PLSA have published guidance which provides practical support and advice on the general approach to be taken and sets out considerations for trustees when deciding what to include in their statement.
According to the guidance, an implementation statement should be a relevant, succinct and meaningful statement, clearly outlining how key activities and decisions have helped trustees achieve certain policies and objectives set out in the scheme's Statement of Investment Principles ("SIP") over the preceding year. For example, trustees should include details of where decisions have diverted from or followed policy, the extent to which policy objectives have been achieved and if trustees have been unsuccessful in following their statement policies, what action will be taken to rectify this.
An implementation statement should also contain details of the voting and engagement policies and behaviours by, or on behalf of, the trustees throughout the year, along with any use of proxy voters. Alongside the guidance, the PLSA has produced a Vote Reporting Template, which can be sent to asset managers, to help ensure trustees receive all relevant information required.
When and where should the implementation statement be published?
Trustees must publish the implementation statement on a publicly available website and ensure members are provided with the web address for the statement in their annual benefit statement. The statement must be published as soon as the annual accounts have been signed, but in any event, it should be published no later than 1 October 2021.
Where implementation statements are not produced and published in line with the Regulations, schemes may find themselves subject to discretionary penalties which may be imposed by the Pensions Regulator, with the maximum penalty being £5,000 for an individual trustee and £50,000 for a corporate trustee.
Do DB schemes and hybrid schemes need to produce an implementation statement?
DB schemes are also required to publish an implementation statement by 1 October 2021. However, DB schemes are only required to cover the scheme's voting and engagement policies in the statement, rather than the whole SIP.
Hybrid pension schemes are subject to the same requirements as DC schemes. The implementation requirements apply in full to the whole scheme, even if the DB and DC aspects are run as if they are separate schemes.
What practical steps should trustees take?
Trustees should ensure that they understand the implementation statement requirements which apply to their scheme and seek specialist support from advisers, where required. It is important that trustees begin to consider the most appropriate approach to producing an implementation statement, factoring in the resources and governance capacity of their scheme and ensure they are on track to produce and publish an implementation statement along with their next set of annual accounts.
If you would like to discuss anything raised in this blog, or any other aspect of your DC pension scheme, please get in touch with your usual contact at Brodies.
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