Value for members assessments - what trustees need to do

Topic:

Hot topic

Date published:

Wednesday, 24 November 2021

Author:

Kevin Clark

The new value for members (VFM) assessment is a key component of the government’s strategy to consolidate smaller defined contribution (DC) pension schemes and drive better member outcomes. About 2,000 DC schemes are in scope, as a VFM assessment is needed for those with assets under £100m. Many are with profits, have a Guaranteed Minimum Pension (GMP) underpin or are hybrid with deficits presenting obstacles to change.

I recently took part in a webinar where the panel of legal and pensions experts from PSGS, CMS and Punter Southall Aspire discussed how to actually do one of these new VFM assessments. CMS gave the legal background, Punter Southall Aspire explored the advisory aspects and I covered what pension trustees should be doing on VFM and master trust transfer.

What trustees need to do to prepare for VFM:

• Check your fund charges are below average relative to three comparators - issues to manage are the comparators to use, including the need to have discussions with a DC master trust, and new ESG tilted funds that have no track record.
• Check your fund returns are above average over 5, 10 and 15 years - for your default and self-select funds against their comparator funds.
• Carry out a governance and administration self-assessment – there’s a range of criteria to check including financial transactions, scheme record keeping, default investment strategy review, security of assets, trustee knowledge and understanding (TKU) for professional and lay trustees, communications offline and online, sponsoring employers unconflicted in meeting costs and enhanced level of contributions.
• Report the VFM assessment in your next Chair’s statement – if it’s good, no other action is needed (although see below, as you can always do better!). If it’s poor, the pension trustees need to engage with the scheme’s sponsor to develop an action plan, including possible consolidation discussions with a master trust.
• Commit to developing VFM in your pension scheme so members can be confident they are going to enjoy the Retirement Living Standards promoted by the Pensions and Lifetime Savings Association (PLSA).
• Extend new VFM thinking to all workplace saving schemes – the formal VFM assessment is only a requirement for certain DC pension schemes but all could benefit from VFM thinking (there’s current consultation about extending it further).

If you haven’t already, our webinar is really worth a watch for pension trustees who will need to carry out a VFM assessment in the new year.

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