TPR issues challenging questions to advisers

The Pensions Regulator is planning to issue a series of questions which trustees should ask advisers to determine the suitability of advice and how to manage conflicts of interest.

In a 57-page discussion paper ‘The governance of work-based pension schemes’ the pensions Regulator says research shows while 33% of schemes are using IFAs as an external adviser, 63% of these are using the same adviser as the employer.

It says the Trustee Knowledge and Understanding (TKU) code, the scope of guidance and online trustee toolkit all cover the issue of understanding advice, but says it is considering new proposals to address this issue.

The Regulator adds the governance discussion paper – which forms the third part of its medium term strategy - highlights the “pivotal role of education and the importance of good governance in running all schemes”.

It says key themes relating to defined benefit (DB) schemes are managing conflict; the employer covenant and relations with advisers, while issues around administration, investment choices and winding-up relate to all schemes and these issues will also be highlighted in the DC guidance.

As a result, the Pensions Regulator says it intends to issue a series of questions to ask advisers which will be aimed at trustees and employers – where they have the power to appoint trustees.

The questions will cover issues such as the suitability of the adviser for the issue they are advising on, and how advisers will manage conflicts of interest, in addition to identifying areas where care over advisers is needed, such as the use of contingent assets.

But the Pensions Regulator says while the Morris review suggests a regulatory code of practise on how trustees manage adviser relationships would be useful, it says it is “not convinced at this stage that a code is necessary but will keep this option under review”.

The Regulator says while the risks of conflict of interest, a failure to understand advice and the use of advisers who are not suitable for the issue in question can occur in smaller schemes, it recognises “it is not generally cost effective for small schemes to manage conflict by using separate advisers from the employer”.

As a result, it says it aims to ensure the questions it provides for trustees to use when challenging advisers will be “relevant for trustees of all schemes”. In addition the Pensions Regulator has also published the responses to the regulation of defined contribution (DC) schemes, which has highlighted issues including administration, investment choices, charges, decisions on retirement choices and member awareness.

The 21-page document – which outlines the results of 40 industry responses to the consultation which closed on 2 February – confirms the responses, which highlighted issues over member take-up and the level of contributions, will “inform the guidance” setting out how it will regulate DC schemes, which will be published shortly.

Tony Hobman, chief executive of the Pensions Regulator, says: “Our approach to both DC regulation and governance will be to educate, enable, and then enforce – supporting schemes is our priority, alongside partnership working. Intervention will be only as a last resort.”

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