Too many DC schemes, especially smaller ones, are failing to meet expectations on assessing value, according to a survey from The Pensions Regulator (TPR).
The DC schemes survey, published today, showed a lack of awareness from small schemes around new value for members assessments, and that smaller schemes are less likely to take action on financial risks caused by climate change than larger ones.
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.”
Value for money
Only around one-quarter (24%) of DC schemes met TPR’s key governance requirement to assess the extent to which member-borne charges and transaction costs provide good value, with larger schemes, such as master trusts, more likely to meet it.
As larger schemes were more likely to assess value against costs and charges than smaller ones, only 11% of members were in schemes that failed to meet TPR’s expectations.
Value for members assessment – new requirements for smaller schemes
The survey also explored how aware schemes with less than £100 million of assets under management (AUM) were of requirements to carry out a more prescriptive value-for-members assessment from the first scheme year that ends after 31 December 2021.
Trustees of in-scope 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.
Of the 208 schemes with under £100 million AUM quizzed on their awareness of the assessment requirement, 64% reported they were unaware of it. Smaller schemes were more likely to be unaware of the requirements, with 58% small and 70% of micros schemes unaware compared with 15% of large schemes and 23% of medium schemes.
In March, TPR announced it had launched a regulatory initiative to address low compliance levels by smaller schemes with this requirement.
As 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% 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%) and fewer than one-in-10 small (4%) and micro (8%) schemes.
All schemes are exposed to some degree of climate-related risk and opportunities and all trustees should allocate the appropriate amount of time and resources assessing this.