A helping hand with value for members assessments

From 1 October 2021, legislation requires value for members assessments to be carried out on certain trust-based Defined Contribution (DC) pension schemes. They form an integral part of trustee duties and help to ensure members are receiving good outcomes from their pension scheme.

The Pensions Regulator believes that value for members underpins all areas of scheme management, and that failure to carry out an adequate assessment suggests that trustees may not be able to identify and address underperforming areas. This significantly increases the risk of members receiving poor value.

How do value for members assessments affect me?

Value for members assessments apply to DC pension schemes that:

• have assets of less than £100m
• have operated for at least 3 years
• have a year-end that falls after 31 December 2021.

Trustees of these DC schemes have a legal duty to produce a value for members assessment and present their findings in their annual chair’s statement. Every year, trustees must evaluate factors such as costs and charges, net investment, and administration and governance of their scheme, and assess these against 3 comparator schemes to determine whether they are offering the best possible value to members.

Failure to complete a value for members assessment can jeopardise positive outcomes for members but can also result in penalties that trustees are personally liable to pay and further regulatory intervention.

If an assessment reveals members are receiving poor value for money, trustees are required to take steps to rectify this. This could include winding up the current scheme and consolidating members’ assets with a different scheme if current arrangements can’t be improved. At least one of the 3 comparator schemes should be one with which trustees have had discussions about a transfer of members’ rights, in the event the scheme decides that it does not provide good value.

Your value for members assessment must consider the following 3 factors:

Factor 1: Costs and charges

Factor 2: Net investment returns

Factor 3: Governance and administration against 7 key metrics:

1. Promptness and accuracy of core financial transactions
2. Quality of record keeping
3. Appropriateness of the default investment strategy
4. Quality of investment governance
5. Level of trustee knowledge, understanding and skills to operate the pension scheme effectively
6. Quality of communication with scheme members
7. Effectiveness of management of conflicts of interest

For more information on what to consider when assessing value, please see the detailed guidance provided by The Pensions Regulator and the Department for Work and Pensions.

What The People’s Pension offers as a comparator scheme

• 30+ years of pension experience
• Provider of award-winning products and services
• A profit for people organisation – we focus on reinvesting profits for our customers, not shareholders
• Strong investment options to help our members’ savings go further
• Offering excellent value to savers – we give over £1m back to members each month* in rebates on our annual management charge

_{*£1m is the combined total of the rebate on all of our members’ pots each month in 2021}

See how we measure up against other master trust workplace pensions.

More information on value for members assessments

• Brighttalk Webinar with David Lunt on Value for Money – the trustees’ conundrum
• Demonstrating value for money drives better retirement outcomes

If you still have questions about value for members assessments or would like to learn more, our Relationship Managers are here to support you.

Call 0333 2301 385 to get in touch or use the contact form below.