Value for member assessments in DC schemes
Frequently asked questions
It is a legal requirement for trustee boards of certain occupational pension schemes that provide money purchase benefits to calculate at least annually the charges (and, insofar as they are able to, transaction costs) to which members’ funds are subject and to assess the extent to which they represent good value for members. Trustee boards must explain their assessment of value for members in the annual chair’s statement.
Members of defined contribution (DC) schemes often pay the costs and charges for services such as investment management, administration and communications. They rely on trustee boards to have a good understanding of these costs and charges and to ensure they represent good value in terms of the quality and suitability of services and in comparison with other options available on the market. Poor value for members is therefore a key risk that trustee boards need to manage.
Our recent survey of DC schemes indicated that, when it comes to carrying out their value for members assessment (and explaining this in the chair’s statement), trustee boards may not be meeting the standards that we expect and which are set out in our DC code of practice and guidance. We appreciate this is a challenging area of scheme governance and we wish to better understand the issues that trustees are facing so that we can make our expectations clearer. We also hope to gather examples of good and poor practice that will help us provide trustees with more helpful guidance.
According to our survey, trustees of small and micro schemes (schemes with 2 to 99 members) are the least likely to meet the standards we expect. We have randomly selected a sample of 100 schemes where a scheme return was submitted between 19 July 2016 and 30 June 2017 and, according to our records:
- scheme membership is less than 100
- a chair’s statement has been completed
- the scheme is not in the process of winding up (and has not been wound up)
- we do not have an open regulatory investigation
If your scheme does not meet all these criteria, please let us know as soon as possible.
We will review the extracts to see if there are common issues that trustees of small and micro schemes face when carrying out their value for member assessments. We also hope to identify instances of good and poor practice. We will engage in more detail with the trustees of a proportion of the 100 schemes in order to gain a deeper understanding of any issues, as well as to explore instances of good or poor practice that we discover. This is likely to involve face-to-face meetings.
The purpose of this thematic review is not to seek out breaches of the law. However, if the trustees have failed to prepare a chair’s statement within the statutory timescale, or the chair’s statement does not comply with the legislative requirements, we are required to impose a penalty on the trustees. In addition, if the trustees are not complying with their legal duties we may take regulatory action.
Information obtained by TPR may be 'restricted' within the meaning of section 82 of the Pensions Act 2004 / article 77 of the Pensions (Northern Ireland) Order 2005. If so, TPR, and any person who receives the information directly or indirectly from TPR, is subject to the restrictions on its further use and disclosure set out in that section. Onward disclosure of restricted information, other than in accordance with the Pensions Act 2004, is a criminal offence.
The information (including personal data) you give us in response to this request may be used (including disclosing it to third parties) in connection with any of our statutory functions or duties. We are a data controller for the purposes of the Data Protection Act 1998 (the Act) and hold and process personal data in accordance with the principles set out in the Act. We will assume you have the necessary authorisation / permission to disclose personal data of other individuals or persons to us unless you tell us otherwise.