Report on security of DC assets launched by new Working Party
The Security of DC Assets Working Party (the ‘Working Party’) has launched the first guide for trustees to help them explore the levels of protection in place for DC assets. It aims to provide a framework as well as give trustees of DC schemes a steer on the questions to ask advisers, such as investment consultants and lawyers, to improve levels of understanding of the protections in place for members. It also highlights key areas to explore when seeking to change platform provider or fund managers. For more information, see Sackers’ DC Hot Topic.
Barry Parr, Chair of the Security of DC Assets Working Party and Co-Chair of the Association of Member Nominated Trustees, said:
“The security of DC assets is an issue that’s likely to grow in prominence for three reasons. First, increasing numbers of people are now members of DC schemes, with a corresponding rise in DC assets. Second, we’ve seen a significant growth in the number of master trust arrangements and third, it’s a requirement for trustees to understand this issue as part of their assessment against the Pensions Regulator’s Code of Practice 13 including, when published next summer, the revised version of that Code on which TPR has recently consulted.
“We were keen to set up the Working Party to get more clarity on the issue and to help trustees understand what questions they should ask, particularly as the new draft code requires that trustees not only understand the protections, but that they also need to share their assessment of these with employers and members. We’ve worked closely with a number of industry bodies, including the Pensions Regulator and the FCA and will continue to do so, on this issue, to try and get further clarity.”
Anna Copestake, Senior Associate at Sacker and Partners LLP and also a member of the Working Party, added:
“The first DC Code of Practice 13 stated that trustees should understand the levels of protection in place for DC assets. Many trustees assume that the assets of DC scheme members are covered by the Financial Services Compensation Scheme (FSCS), but that may not be the case and the levels of protection in place for members will depend on a number of factors, including whether funds are held directly on a platform or whether they are set up as ‘insured life’ funds or structures such as open ended investment companies (OEICs). The more we looked at it, the more complex the issue became. We were keen to give some clarity to the issue. We hope this framework will prove invaluable.
Rona Train, Partner at Hymans Robertson and a member of the Working Party, added:
“It’s important to emphasize that the risk of things going wrong is, in reality, low – a “tail risk” in investment terms. However, what we do want to do is draw attention to the issue and make sure that protection is a factor that all DC trustees think about in managing their scheme effectively. Trustees may also want to think about how this is reflected in their risk register as well as in the scheme’s objectives. This is all about understanding the risks and being prepared to mitigate them where possible.”
A copy of the guide can be found http://amnt.org/dc-assets/