TPR: Smaller DC schemes urged to swot up on value for money assessments

In its 47-page annual DC schemes survey TPR said it had found a lack of awareness from small schemes around the need to carry out a more prescriptive value for money assessment.

The requirement to put together the assessments came into effect as of the first scheme year end that fell after 31 December 2021. 

Nicola Parish, executive director of frontline regulation at TPR said trustees of small schemes should ask whether the best decision they can make for their members "is to put them into a better-run, better-value scheme and wind up".

“The upcoming joint value for money framework will increase transparency and competition in the market, so now is the appropriate time for trustees to evaluate whether they can compete with the best master trusts in offering value for money.”

The survey of trust-based occupational DC pension schemes was carried out between 25 October and 21 December 2022 and involved 342 interviews, 23 with representatives of master trusts.

What is the value for money assessment?

Legislation requires schemes with less than £100m of assets under management (AUM) to carry out a more prescriptive value-for-money assessment for members; the TPR announced it would be running a regulatory initiative on value for money assessments in March.

Only around one-quarter of DC schemes met TPR’s key governance requirement to assess the extent to which member charges and transaction costs provided good value.

Of the 208 schemes with under £100m AUM quizzed on their awareness of the assessment requirement, 64 per cent reported they were unaware of it. Smaller schemes were more likely to be unaware of the requirements, with 58 per cent small and 70 per cent of micros schemes unaware compared with 15 per cent of large schemes and 23 per cent of medium schemes.

Trustees schemes not offering value must tell TPR via the scheme return whether they are winding up or transferring the DC rights of their members into another scheme.

If they are not winding up, they must explain why and what improvements they will make to ensure their scheme offers value.

Climate change and pension scheme risk

The TPR also found that in 2021, action on climate change governance and reporting was widespread among large schemes and master trusts, but few small and micro schemes had devoted time or resources to it.

Every master trust and 86 per cent of large schemes had allocated time or resources to assessing any financial risks and opportunities associated with climate change. This fell to around half of medium schemes, 48 per cent and fewer than one-in-10 small and micro schemes.

TPR said all schemes were exposed to some degree of climate-related risk and opportunities and all trustees should allocate the appropriate amount of time and resources assessing this.

In March TPR published a review of a selection of the climate-related disclosures published by occupational pension schemes. 

Disappointing

Joe Dabrowski, deputy director of policy, PLSA, said: “All savers deserve to belong to a scheme that has high standards of governance. It is disappointing to see a lack of engagement with TPR’s value for money assessments, particularly among micro and very small schemes with less than 100 members.

“The results indicate TPR should re-double and prioritise their efforts and regulatory focus with this cohort. Going forward, value for money assessments will aid supervision and also provide the tools for schemes to help themselves to improve governance and performance for schemes of all sizes.”