TPR reviews value for member assessments in DC

There are four key areas the pensions watchdog expects trustees to consider as a minimum when they assess value for members, including scheme management and governance, administration, investment governance and communications.

There’s very little time for trustees of smaller schemes to think intellectually about what they want to try and achieve

Richard Butcher, PTL

However, the regulator believes many trustees of small and micro schemes may not be properly assessing value for members.

Its thematic review, launched on Monday, will look at the explanation of the value for member assessments made by 100 small and micro schemes in their chair statements. A report on the findings is due to be published in summer 2018.

Trustees are required to carry out a value for member assessment every year. The regulator said this can help trustees identify and address poor-performing areas, and can lead to better outcomes for members.

The watchdog also said the findings of its review will allow it to understand the challenges trustees face when conducting the assessment.

Trustees should have their own view

Helen Ball, partner at law firm Sackers, said that when conducting a value for members assessment, it is important to make sure “it’s the trustees views that are being recorded and discussed, rather than the views of any consultants they may be working with”.

Many large schemes will make their own decisions, but have consultancies assisting them to conduct thorough assessments. Smaller schemes, however, may not have the resources to pay for this kind of support.

This means “there’s probably more work that the individual trustees would need to do, that other bigger schemes are paying consultants to do”.

As part of this review, examples of good practice may be used to help develop targeted guidance for this sector, supporting trustees of small and micro schemes to achieve value for members.

The regulator launched a campaign directed at trustees and their advisers in September, as part of its wider push to raise governance standards. However, some experts have raised concerns over whether the guidance and information is being used.

Ball noted that “there is information out there that perhaps the regulator would hope these schemes are using, and this is a way of testing” whether they are using it.

Bigger is often better

She highlighted how amalgamating small pension funds could help improve standards due to the benefits of scale.

Facilitating consolidation for smaller schemes is something that is being explored as part of the Department for Work and Pensions’ consultation on bulk transfers of DC pensions without member consent, published on October 26.

Similarly, Barry Mack, director at consultancy Muse Advisory, said “there’s a view out there that smaller schemes really are not viable, and perhaps they should be moving into mastertrusts”. He explained how their scale allows them to demonstrate better value in terms of more up-to-date communication tools, for example.

The assessment is driven not only by costs to members, but also the value of the member engagement, communication available, and the flexibility members have in accessing their money, Mack highlighted.

“One could say that smaller schemes can’t really leverage the scale of the bigger schemes,” and that they do not have the budget to provide the sorts of communications larger schemes offer, he said.

Source: The Pensions Regulator

Richard Butcher, managing director of professional trustee company PTL, also drew attention to a lack of time and resource for smaller schemes and the impact this may have on value for member assessments.

“When you get to that end of the market you’re trying to do something on a fairly commoditised basis. There’s very little time for trustees of smaller schemes to think intellectually about what they want to try and achieve,” he said.

Mark Futcher, partner at consultancy Barnett Waddingham, noted that “one way to rate value is to compare against what members could have”.

He highlighted the benefits of “active benchmarking against other options in the market”. This could include looking at whether the scheme should consider a mastertrust or a new third-party administrator, for example.