Too many small defined contribution schemes are failing to meet value expectations, the Pensions Regulator has warned.
In a survey published yesterday (July 4) TPR said it had found a lack of awareness from small schemes around value assessments, and that smaller schemes were less likely to take action on financial risks caused by climate change than larger ones.
It said a mere quarter of small schemes (24 per cent) were meeting its requirement to assess value for money for members.
Schemes with less than £100mn of assets under management have been required to carry out more prescriptive value assessments since October 2021. In March TPR announced it would begin to check that these rules were being met by those schemes.
But of the 208 schemes with under £100mn AUM quizzed as part of the 2022 survey, 64 per cent reported they were unaware of the rules.
Smaller schemes were more likely to be unaware, with 58 per cent small and 70 per cent of micro schemes unaware compared with 15 per cent of large schemes and 23 per cent of medium schemes.
In total TPR interviewed 342 schemes, including 23 representatives of master trusts, between October and December.
Nicola Parish, executive director of frontline regulation at TPR, said: "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."
The government, as part of its Edinburgh reforms, wants to speed up consolidation of small schemes to ensure savers are not subjected to poorly governed or underperforming schemes.
In January it started to consult on a new value for money framework, alongside the FCA and TPR, which will set metrics and standards for schemes in areas such as investment performance, cost and charges and quality of service.
As it stands, trustees of schemes in scope of the assessment rules which are not offering value are required to tell TPR via the scheme return whether they are winding up or transferring the DC rights of their members into another scheme.
If they are not winding up, they must explain why and what improvements they will make to ensure their scheme offers value.
TPR said as larger schemes were more likely to assess value against costs and charges than smaller ones, only 11 per cent of members were actually in schemes that failed to meet TPR’s expectations.
Nevertheless Joe Dabrowski, deputy director of policy at PLSA, said the findings were disappointing.
He said: "All savers deserve to belong to a scheme that has high standards of governance. It is disappointing to see a lack of engagement with TPR’s value for money assessments, particularly among micro and very small schemes with less than 100 members.
"The results indicate TPR should re-double and prioritise their efforts and regulatory focus with this cohort. Going forward, value for money assessments will aid supervision and also provide the tools for schemes to help themselves to improve governance and performance for schemes of all sizes."
Climate change
TPR also quizzed schemes on their climate change awareness and found smaller schemes were less likely to take action on financial risks caused by climate change than larger ones.
The reason could be found to some extent in the fact that smaller firms do not have the same climate change reporting requirements as larger ones.
TPR found every master trust and 86 per cent of large schemes had allocated time or resources to assessing financial risks and opportunities associated with climate change. This fell to about half of medium schemes (48 per cent) and fewer than one-in-10 small (4 per cent) and micro (8 per cent) schemes.
The regulator said all schemes were exposed to some degree of climate-related risk and opportunities and all trustees should allocate the appropriate amount of time and resources assessing this.
carmen.reichman@ft.com
