Governance gaps persist between small and large pension schemes, with only 27 per cent of smaller defined contribution (DC) plans having an effective system of governance and completed risk assessments, according to The Pensions Regulator (TPR).
Disparities in oversight
The regulator’s inaugural Trustee Survey compared practices across defined benefit (DB) and DC schemes. It found that master trusts performed best, with 89 per cent having completed relevant governance and risk reviews. Large DC schemes followed at 94 per cent, while large DB schemes scored 80 on a governance indicator.
Small DC schemes recorded the lowest scores. Their average score was 49, falling to 39 for micro DC schemes. Master trusts achieved the highest average score of 88, followed by large DC schemes at 83. The research highlights that smaller schemes generally lack formal arrangements to identify and manage risks to members’ savings.
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Overall, DB schemes achieved an average governance score of 72, compared with 47 for DC schemes, although the gap narrowed significantly when micro schemes were excluded. Using a governance indicator scored from zero to 100, the research found that master trusts achieved the highest average score of 88, followed by large DC schemes at 83 and large DB schemes at 80.
Trustee boards often juggle competing priorities. While 29 per cent said improving member outcomes was their primary driver, 55 per cent balanced these goals against regulatory compliance and costs. Eleven per cent prioritized compliance and risk management over member outcomes.
Value for members assessments were not consistently driving change. Among DC schemes that conducted such reviews, only 12 per cent reported measurable improvements. In small DC schemes, 47 per cent said the assessment raised awareness without leading to change, and 46 per cent reported no impact.
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Trustee composition and training
Composition of the board affects governance quality. Schemes with a professional trustee achieved an average score of 74, compared with 56 for those without. A sole trustee scored 37, whereas a professional corporate sole trustee scored 79.
Training is more established than recruitment. However, weaknesses remained in trustee recruitment and succession planning, with fewer than half of DB and DC schemes reporting that they had a succession plan in place. Despite these differences, TPR found that trustee training was relatively well established across the market, with 90 per cent of DB schemes and 77 per cent of DC schemes (excluding micro schemes) reporting mandatory training.
Regulator response
Meanwhile, although around seven in 10 schemes had compared their governance arrangements against TPR’s General Code, this fell to just 33 per cent among small DC schemes. TPR said it would use the findings as a baseline to monitor governance improvements as the pensions market undergoes further consolidation and regulatory reform.
