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14 October 2019

2: DWP consultation on fiduciary management tenders

On 29 July 2019, the government published a consultation on the draft Occupational Pension Schemes (Governance and Registration) (Amendment) Regulations 2019. These proposed regulations would integrate into pensions law an Order of the Competition and Markets Authority (CMA) following its investigation into the investment consultancy and fiduciary management market. They will require trustees of occupational pension schemes, subject to certain limited exceptions, to carry out a tender process for fiduciary management services and to set objectives for their investment consultants. The regulations will also enable The Pensions Regulator (TPR) to oversee these new requirements and ensure more efficient compliance.

The CMA’s report concluded that for both investment consultancy and fiduciary management services, there is a low level of engagement by trustees and a lack of clear and comparable information to assess value for money, and that consultants steer customers towards their own higher cost services. The CMA found that this leads to an adverse effect on competition and a resulting detrimental effect on trustees, employer sponsors and pension scheme members. It therefore recommended mandatory competitive tendering for fiduciary management services, as well as a requirement to set objectives so that trustees can monitor and measure the performance of their investment consultancy provider.

The draft regulations have adopted the CMA’s recommendations that will be implemented into pensions law. Trustees will be required to carry out a competitive tender process if they wish to delegate investment decisions for 20% or more of their scheme’s assets. Transitional provisions will apply where an appointment is already in place. Trustees will also be prohibited from entering into a contract with an investment consultant unless they have set strategic objectives to monitor its performance. In order to make it easier for trustees to compare providers, there will be separate reporting obligations for fiduciary managers and investment consultants in relation to their charges, fees and performance. The regulations will not apply to executive schemes, public service schemes, or certain schemes with fewer than 12 members.

This consultation closed on 2 September 2019. Although the regulations are not expected to come into force until 6 April 2020, the CMA’s Order will take effect from 10 December 2019. Trustees should therefore be taking steps now to prepare for the new procedures to ensure compliance with those parts of the Order that are applicable to them. In particular, since fiduciary management and investment consultancy contracts are becoming more bespoke, it is vital that they are reviewed by legal advisers to ensure that they are appropriate and reasonable. TPR has already published consultation on draft guidance to help trustees comply with the new requirements.

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