Too many DC schemes, particularly smaller ones, fall short of expectations when determining value, according to a survey by The Pensions Regulator (TPR).
Small schemes are less likely to take action on financial risks brought on by climate change than larger schemes, according to the DC schemes survey, and smaller schemes are less aware of new value for members’ evaluations.
TPR’s key governance to evaluate whether member-borne charges and transaction expenses give fair value was only met by 24 per cent of DC schemes, with larger schemes like master trusts more likely to do so.
Only 11 per cent of members were in schemes that did not live up to TPR’s standards because larger schemes were more likely than smaller ones to evaluate value against expenses and levies.
The survey looked at how well-informed schemes with less than £100m in assets under management (AUM) were about the need to conduct a more stringent value-for-members evaluation beginning with the first scheme year that ends after December 31, 2021.
Trustees of in-scope schemes that are not providing value must inform TPR via the scheme return if they are winding up the scheme or transferring the DC rights of their members to another plan.
Around 64 per cent of the 208 schemes with under £100m in AUM who were asked if they were aware of the evaluation obligation gave this response. In contrast to 15 per cent of large schemes and 23 per cent of medium schemes, 58 per cent of small schemes and 70 per cent of micros schemes were uninformed of the standards.
TPR said in March that it had started a regulatory initiative to address the poor levels of compliance with this requirement by smaller schemes.
Several big schemes and master trusts were taking action on climate change governance and reporting, but few small and micro schemes had invested time or resources in it.
Amounts of time or resources had been set aside by every master trust and 86 per cent of big schemes to evaluate any financial risks and possibilities related to climate change. This decreased to around half of medium schemes, or 48 per cent, and less than one in ten small schemes, or 4 per cent, and micro schemes, at 8 per cent.
TPR executive director of frontline regulation Nicola Parish says: “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.”
