Value for members assessments are here
Deadlines are fast approaching for DC Schemes under £100m to publish their Value for Members (VfM) assessments. New regulations effective from late 2021 introduced this requirement (see the guidance here).
Value for members = costs, charges and investment returns
Those of us involved in the pensions industry have an innate focus on all things financial. In the context of a DC scheme, doesn’t that mean costs, charges and investment returns?
To some extent, yes. And most trustees likely feel well equipped to consider the costs, charges and (net) investment returns of their scheme. But this is just one area of focus under the requirements.
Trustees must have a broader outlook when considering “value”. They must assess value for members against seven key metrics set out in the requirements under the heading of Governance and Administration. Getting a clear picture of value for members across these criteria may become burdensome without some decent support.
This article looks at the assessment criteria and highlights how Trustees can address the criteria with the help of their advisers – notably the Administrator, Investment Consultants, and Scheme Secretary.
How your scheme administrator can help
Promptness and accuracy of core financial transactions
Trustees should have processes in place to deal with the risks associated with late or incorrect financial transactions. The legislation identifies four key financial transactions which trustees must consider. To compound matters, the Trustees’ assessment also needs to consider legislative timeframes as well as service level agreements (SLAs) in place in respect of these four financial transactions. Trustees must assess the proportion completed accurately within the required timeframes.
Your scheme administrator should be reporting their performance against these financial transactions in your regular stewardship reporting. If not – ask them why not.
Quality of record keeping
The legislation considers security, accuracy, scope, and quality of member data. Trustees should collectively consider these aspects, along with data review cycles.
Trustees must also hold certain data as required by law, for example records of trustee meetings.
Your scheme administrator can share with you the member data security controls they have in place. They should have discussed with you a method and frequency for reviewing common and scheme specific data in line with TPR guidance. If not – ask them why not.
Quality of communication with scheme members
Trustees should consider the quality of information given to members (is it accurate, clear, and concise?) and review if disclosure regulations are being met. They must also take into account members’ communication method preferences and make appropriate use of technology.
Your scheme administrator can confirm that they are meeting disclosure requirements for your scheme, and report any breaches to you. In most cases your scheme administrator will be using their standard communication templates. Ask them if they have any accreditations for their communications, for example from the Plain English Campaign. Consider reviewing their material from a common sense perspective – simply, does it read well?
How your investment consultant can help
Appropriateness of the default investment strategy
The investment strategy should be clear and appropriate for each stage of the member’s lifetime journey. Scheme specific policies should be in place regarding investment strategy objectives, ESG and climate change risks and opportunities.
Your investment consultant should be discussing these items with you regularly. If not – seek stronger engagement.
Quality of investment governance
Trustees must document and follow robust investment governance procedures. Where delegations exist, the individuals must be appropriate and trustees must hold them to account. Trustees should remain actively involved in investment decisions, irrespective of delegations.
Ask your investment consultant how they reach their recommendations for your scheme. Make sure they are taking your scheme specifics into account.
How your scheme secretary can help
Level of trustee knowledge, understanding and skills to operate the pension scheme effectively
Trustees must assess and explain how well they have performed against the legislative ‘trustee knowledge and understanding’ requirements. They should also consider a range of other effectiveness measures.
Your scheme secretary should support you with this measure. Trustee Knowledge and Understanding should be a regular meeting agenda item. Trustee Board effectiveness should be reviewed periodically with objective input from people such as the scheme secretary.
Effectiveness of management of conflicts of interest
The scheme should have strong written procedures to identify, manage and monitor conflicts of interests. The procedures should be regularly reviewed. All trustees should be aware that they must declare and discuss any potential conflicts. The conflicts register must be discussed at every Board meeting.
Conflicts of interest should appear on your meeting agenda for every meeting. Your scheme secretary should support you to discuss and document conflicts and potential conflicts. Conflict management papers are a great way to take the conflict head-on and ensure they do not adversely impact the trustees’ business.
Proportionate to scale?
To pass the VfM assessment, all seven criteria must be met. Many small schemes will not be able to pass the value for members assessment. Trustees of these smaller schemes may feel overwhelmed by these assessments. It may seem disproportionate to the size of the scheme. But Trustees should be able to get some support from their existing advisers or the wider market on an ad-hoc basis.
It’s worth remembering that the aim of the legislation is to drive consolidation. As mentioned in our previous article, for many this assessment is an exercise in futility.
Where else can you get help?
Do you know how your scheme compares with comparator schemes? If you are a trustee or a sponsor of a DC scheme at the small end of the market, you should be looking at the master trust market. Can your DC scheme really stack up against larger scale options under these criteria?
We have experience in benchmarking, reviewing, and assessing pension scheme administration and governance across all service providers. We also have data and insights on the commercially available master trusts.
If you would like to know more about the VfM assessment or the master trust market, we would be delighted to chat to you. We can share our views on the latest developments master trusts have to offer, what providers will be a suitable comparison and how we can help streamline a selection process for you. Get in touch with Tina on 020 8213 5860.