It’s an appropriate time for DC pension schemes to question whether they are providing value to members – particularly the smaller schemes. A recent survey revealed a lack of awareness around value and ultimately, failing to meet expectations set by The Pensions Regulator (TPR).
Undoubtedly, it is a challenge for smaller DC schemes to compete with large master trusts when it comes to offering value for money. However, the statistical evidence is simply undeniable for all DC schemes. Significant results show that:
– Only 24% of DC schemes met the key governance requirements relating to which member-borne charges and transaction costs provide good value. However, only 11% of members were in schemes that failed to meet TPR’s expectations;
– 64% of schemes with under £100 million AUM were reported to be unaware of the member assessment requirement with smaller schemes more likely to be unaware; and
– Fewer than 1 in 10 small and micro schemes has allocated time or resources to assess financial risk and opportunities relating to climate change.
A Solution in Place
Although it appears DC schemes have been continually unmindful to regulations and expectations set, TPR has carefully considered the steps needed to address the low compliance levels. A value for money framework was introduced on 30 January which encourages transparency and competition within the market. In addition to this, smaller DC schemes that do not offer value must inform TPR via the scheme return whether they are to wind-up or transfer the DC rights of their member to another scheme and, if they are not winding-up, then they must present an explanation and improvement plans to ensure value is offered.
In the journey from awareness to action, bridging the gap in DC pension scheme value is of paramount importance, especially for smaller schemes. By concentrating on the measures set by The Pensions Regulator, DC schemes can move towards a future where value for members is not just a goal, but a reality.