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10. Value for members

Making sure your scheme members are receiving value for money is fundamental to being a good 21st Century trustee.

Whatever your scheme type or size you should be taking steps to regularly assess the extent to which charges and transaction costs deducted from members, for goods and services relating to running the scheme, provide good value in relation to the benefits and services received by members.

You should consider that value for members does not necessarily equate to ‘low cost’.

Important

For scheme year ends falling after 31 December 2021, this guidance will not be relevant for all schemes.

From this date, certain schemes must carry out a more detailed value for members assessment. This involves self-assessing the quality of the administration and governance with reference to seven key metrics and comparing your scheme’s costs and charges and net returns against three other schemes.

This will apply to you if your scheme has:

  • less than £100 million total assets according to the most recent audited accounts (for hybrid schemes total assets includes the defined benefit (DB) element)
  • operated for at least three years
  • a scheme year-end that falls after 31 December 2021

And:

  • you have not notified us that it is in the process of winding up

Read the statutory guidance on value for members assessments on GOV.UK. This is intended to help you understand the factors to consider as part of the detailed value for members assessment, including how you might carry out a comparison against three other schemes.

Key messages

  • Trustees of defined contribution (DC) schemes have a legal duty to produce a value for members (VFM) assessment and include the findings in their annual chair’s statement.
  • The VFM assessment can have a significant impact on members’ savings and help safeguard positive member outcomes.
  • When compiling the VFM assessment, you should adopt a proportionate approach, based on the characteristics of your scheme.
  • It is strongly recommended that DB schemes assess value for members to help ensure good member outcomes.

Value for members assessment – it’s your legal duty

In most cases, members of DC schemes rely on the trustees to make important decisions about their fund, including the level of costs and services provided, and to deliver and assess value for them.

Trustees of DC schemes have a legal duty to assess these costs and charges and include the assessment in the annual chair's statement.

Therefore, VFM assessment forms an integral part of a trustee’s duties and the results of the assessment can have significant impact on members’ savings and help to safeguard positive member outcomes.

How to do your VFM assessment

There is no ‘one size fits all’ approach to VFM assessments, as the range of services available can vary significantly from one scheme to the next, often depending on the size of the membership, the nature of benefits and in some cases how long the scheme has been operating.

It is therefore up to the trustees to determine a proportionate approach to their assessment based on the characteristic of their scheme. However, this approach should be a framework that the trustees repeat each year.  There are some simple steps that all trustees should follow:

  • gather information on all costs and charges in a timely manner to ensure the assessment is completed by the statutory deadline
  • consider whether the benefits and services received in exchange are of good quality and meeting the needs of the membership. Trustees should consider at a minimum the following key areas:
    • scheme management and governance
    • administration
    • investment governance
    • communications
  • compare these costs and charges to other options on the market
  • reach a conclusion and agree next steps (ie any actions required to address poor value), documenting the approach taken and to be used as evidence of the assessment
  • report on the outcome of the assessment in the annual chair’s statement

For further detail see our illustrative approach and guide to value for members.

What to do if your scheme isn’t providing good value

Where the VFM assessment reveals services offering poor value to members, it is vitally important that trustees investigate such matters to identify what steps can be taken to improve conditions.

There will be occasions where the power to make the required improvements sits outside of the trustee’s powers. In such cases, it is important that trustees use their relationship with the sponsoring employer and service providers to introduce positive change, as it is ultimately the trustee’s responsibility to address areas of poor value.

There are a variety of ways in which trustees can choose to approach improving value for members within their scheme, for example:

  • remove unused services
  • re-tender for services
  • simplify or standardise particular services

However, trustees should take care to consider whether costs of change can be justified by reducing member-borne charges or improving services in the long term, and will not unfairly disadvantage any members.

It will not always be possible for trustees to improve conditions for their membership within their current arrangements. When such circumstances arise trustees should consider whether members would benefit from the scheme being wound up and transferring benefits to a different arrangement.

Larger schemes can often use economies of scale to offer lower costs for members without detriment to the quality of the services provided. Trustees should also be aware that changes to legislation in April 2018 removed some of the barriers to winding up. These simplified the process of bulk transfers without consent of money purchase benefits without guarantees. Read guidance on bulk transfers without consent on GOV.UK.

Risks of failing to carry out VFM assessments

Where trustees fail to carry out their annual VFM assessment or to meet the standards for VFM assessments we have set out in the Defined Contribution code of practice (No. 13), they risk jeopardising positive member outcomes.

Trustees are required by law to undertake the assessment of member-borne costs and charges annually and to provide an explanation of their assessment in their chair’s statement. Failure to do so can result in penalties that the trustees are personally liable to pay and further regulatory intervention.

Value for members and DB schemes

While there is currently no legal duty on DB schemes to annually assess value for money, we strongly recommend trustees do so to help ensure good member outcomes. The Department for Work and Pensions’ White Paper (published 19 March 2018) proposes that, in the future, trustee chairs of DB schemes produce an annual chair statement, which would likely require the inclusion of a VFM assessment.

Examples of good behaviour

Engage members

Trustees on the board recognised the importance of engaging with members when they were undertaking their VFM assessment. They therefore sent out a survey to gain insights as to the needs of the members. The results of the survey showed that a significant proportion of the membership was unhappy with the current scheme communications, and would prefer being contacted via email rather than letters. The trustees therefore worked with their service provider to introduce an email platform to deliver electronic communications.

Undertaking broad comparisons

The trustees of a small DC scheme recognised that they should undertake a comparison of costs and charges placed on members, with like for like arrangements. However, the trustees were mindful that the comparisons should not just be limited to similar schemes, as it may be possible that members be better off in an alternative arrangement.

After undertaking a comparison of the costs and charges, the trustees came to the conclusion that members would receive better value for money if the scheme was wound up and benefits transferred into a larger scheme. The larger scheme in question, through economies of scale, was able to offer lower costs for members without detriment to the quality of services provided. 

Drafting for members

The trustees of a DC scheme were required to relay the findings of the VFM assessment in the chair’s statement. As this is how scheme members primarily learn of costs and charges and how they impact on their benefits, the trustees were mindful that the statement provide a meaningful narrative as to how the costs and charges were assessed and how services received represent value for members.

The trustees therefore drafted the statement using plain English and ensured the document was well positioned to members. They used TPR’s communicating and reporting guide for guidance on writing in plain English.

Ongoing monitoring

The trustees continuously monitored the level of services provided to members. This helped them identify any potential impacts on value for members and allowed them more time to handle issues as they arose.

The trustees also took a long term view, considering any developments in the upcoming year that may affect value for members; these were then discussed at trustee meetings.

The developments included:

  • any changes in legislation
  • number of both new members and members who have left the employer and/or stopped contributions
  • whether the scheme has switched between products or changed investment platform
  • whether new risks have emerged
  • whether new technology has become available on the market which could influence the relative competitiveness and sustainability of certain service providers
  • the level of and reasons for member complaints

Trustee toolkit online learning

The ‘How a DC scheme works’ module contains a tutorial on ‘Value for members and charges’. You must log in or sign up to use the Trustee toolkit.