Fewer than a quarter of defined contribution schemes are meeting value for money requirements, the Pensions Regulator has said, with just 16% of small and 18% of micro schemes assessing the extent to which member-borne charges and transaction costs provide good value. 

 

A 2022 survey based on 342 interviews shows that only a minority of small and micro schemes met value for money requirements on assessing charges and transaction costs. Around half of large (53%) and medium (45%) schemes met the rules.   

  

Size was a key determinant of whether the assessment had been completed. About four in five DC master trusts (78%) met the requirement. Given their large memberships, this also means that 89% of DC members were in a scheme that met value for money requirements last year, down from 91% the year before.  

 

In March, TPR indicated it would begin to crack down on schemes failing to meet value for money duties, releasing initial figures from the latest survey. 

   

     

The main reason for not meeting the requirement was that they did not research the characteristics, preferences and needs of members and take account of this when assessing value for money, the research found.   

 

For small schemes, failing to provide good value should in theory result in immediate improvements or consolidation. New legislation requires schemes with less than £100m of assets under management to carry out a more prescriptive value for money assessment, with TPR expecting schemes that are not offering value to take immediate action or consider winding up. But the survey showed that about 10 months after it came into force, 64% of 208 schemes that were subject to the new stringent assessment were still unaware of it – just 3 percentage points down since 2021. Overall, 17% of schemes with less than £100m of assets under management that were due to have submitted a scheme return to TPR had completed the new value for money assessment.  

 

“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,” said TPR’s executive director of frontline regulation Nicola Parish.  

   

Parish noted that the upcoming joint value for money framework with the Financial Conduct Authority would 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,” she said.  

  

TPR and the FCA published a consultation on shared metrics for assessing value for money in January this year, following a feedback statement in May last year. At the time, the industry was in favour of some of the proposals but disagreed with being benchmarked.  

 

   

 

 

The 2022 survey that was published this week also looked at climate reporting among schemes and found this to be “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% large schemes had allocated time or resources to assessing the financial implications of climate change, falling to about half of medium schemes (48%) and just a fraction of small (4%) and micro (8%) schemes.  
Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Savings Association, said it was 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 redouble 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,” Dabrowski added.