Employee benefits and pension consultancy Premier has launched a new value for member (VFM) assessment service to help trustees negotiate new regulations.
This service is designed to give trustees and employers early warning as to whether their scheme’s default investment strategy meets the new VFM requirement that comes into force in October 2021.
Premier points out that these new regulations, which were updated by the Department of Work & Pensions in June, require schemes to compare investment performance and charges against three comparator arrangements.
Those that fail this VFM test will be required to make changes or consolidate into a larger master trust structure. Premier says that the ‘pass’ or ‘fail’ nature of the assessments will dramatically accelerate the consolidation of small DC schemes.
The DWP’s timetable means schemes with a year end date after 31 December 2021 will have to include the new VFM assessment information in their chair’s statement, increasing the urgency to take action now.
Schemes can register for this free service through Premier’s website and it is available to any trustee board, or sponsoring employer, of a DC pension scheme.
Premier will present the results of the assessment back to the trustees or sponsoring employer and provide a short paper outlining how the performance and charges of the scheme’s default strategy compare with three leading master trust default funds.
It says this assessment service will provide an easy way for trustees and sponsoring employers to determine how their scheme measures up against the new VFM requirements.
Consolidation within a master trust will be a popular solution for schemes that fail the new VFM tests and trustees and employers should make a decision to consolidate as soon as they can. Premier points out that capacity may be restricted, particularly if the DWP extends the VFM requirement to larger schemes with up to £5bn in assets.
Sue Pemberton, head of DC consulting and technology at Premier, says: “With our new value for member assessment service we aim to give employers and trustees a head start in understanding whether their scheme is likely to pass the stringent new VFM tests being set.
“Establishing as soon as possible whether they will need to make significant changes to their scheme, or consolidate into a master trust will be crucial for trustees and employers in these coming months as we could see a ‘capacity crunch’ develop.
“Small schemes that struggle to demonstrate they provide value for members when the new assessments come into force from October, will be faced with additional challenges if the market becomes more selective.
“With so many smaller schemes needing to consolidate at once, lawyers and advisors will be in high demand and master trusts will be able to cherry pick the schemes they prefer. Any trustee board or employer who thinks they may need to consolidate needs to act as quickly as possible, because the longer they wait the more difficult consolidation will be and the less advantageous the commercial terms.”