Smaller defined contribution (DC) pensions schemes are reminded they must prepare a more rigorous value for money (VFM) assessment in line with regulations coming into force with effect from next month (1 October).
The regulations mean trustees of DC schemes with less than £100 million in assets must compare their scheme’s costs, charges and investment returns against three other schemes. They must also carry out a self-assessment of their scheme’s governance and administration in line with seven key metrics.
These schemes will have to report the outcome of this assessment in their annual chair’s statement and provide the findings to The Pensions Regulator (TPR) in a scheme return.
Where trustees fail to demonstrate their scheme offers value, they will be expected to wind up and transfer their members into an alternative scheme. If they do not propose to do this, they must explain why and what steps they are taking to ensure their scheme does offer value.
To help schemes prepare the new assessment, TPR has updated several pages of its guidance. This includes the value for members guide.
David Fairs, TPR's Executive Director of Regulatory Policy and Advice, said: "The success of automatic enrolment has seen more people than ever before saving into defined contribution pension schemes.
"These millions of savers should benefit from the best retirement outcome possible. To ensure this, savers must not be left languishing in poorly governed schemes which do not offer the same value as larger schemes.
"Where smaller schemes are not able to demonstrate they provide this value it’s right they either wind up or take immediate action to make improvements."
Value for members assessment
The more detailed assessment will see smaller schemes assess the quality of their administration and governance with reference to seven key metrics and compare their costs and charges and net returns against three other schemes.
The requirement will apply to schemes that have:
- less than £100 million in total assets according to the most recent audited accounts (for hybrid schemes total assets will include the defined benefit element)
- been in operation for at least three years
- not notified TPR they are in the process of winding up
- a most recent year-end that falls after 31 December 2021
Wind up
Trustees of schemes that started to wind up before the deadline for their chair’s statement do not need to prepare a more detailed value for members assessment provided they have notified TPR of their scheme’s new status.
Until the scheme is formally wound up, trustees must continue to prepare a VFM assessment in the format which they have done so to date and continue to provide an explanation of this assessment in their chair’s statement. They must also explain why they’re not carrying out the more detailed version.
Notes for editors
- The Pensions Regulator is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).
- The Department for Work and Pensions published its statutory guidance Completing the Annual Value for Members Assessment and Reporting of Net Investment Returns on GOV.UK on 21 June 2021.
- On 16 September, TPR and the Financial Conduct Authority published a joint discussion paper on value for money. The paper looks to establish a common framework for the assessment of VFM across the DC schemes we regulate and sets out some proposals for achieving this.
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