Many trustees of small and micro schemes may not be properly assessing value for members, The Pensions Regulator has warned.
In light of this concern, The Pensions Regulator (TPR) is reviewing defined contribution (DC) schemes to assess whether trustees are carrying out adequate assessments of the costs and charges paid by members.
The review will consider the explanation of the value for member assessments made by 100 small and micro schemes in their chair statements.
Trustees must produce an annual governance statement signed by the chair of the trustee board within seven months of the end of each scheme year, confirming they have carried out the annual assessment of the extent to which the services paid for by members provide good value.
Regulations state that trustees should act as demanding consumers on behalf of their members and exercise their judgment on the basis of evidence and that assessing and securing value for members is a key trustee responsibility.
A report on the findings of the review is expected to be published by summer 2018.
Any examples of good practice highlighted by the review may be used to help develop targeted guidance for this sector, supporting trustees of small and micro schemes to achieve value for members.
The Pensions Regulator stated it is essential that members get the benefits they deserve from their pension.
Anthony Raymond, acting executive director of regulatory policy at The Pensions Regulator, said: "Poor value for members is one of the key risks that trustee boards need to manage.
"From our research and experience we believe that many small and micro schemes are failing to meet our expectations by providing a quality assessment of how their charges represent value for members.
"We are conducting this thematic review to better understand this position.
"We are concerned about a tail of sub-scale pension schemes and strongly believe that it is unacceptable to have two classes of defined contribution pension saver – those that benefit from the premium of scale and good governance and administration, and those that do not.”
Tom McPhail, head of policy at Hargreaves Lansdown, said: “The Pensions Regulator has well-documented concerns about the quality of governance in smaller pension schemes, as well as the sheer number of smaller pension schemes.
"It is also important to note value does not simply mean ‘low cost' though the price paid for services is important. It is also about making sure all members get good outcomes from their retirement saving.
"Ultimately, the regulator sees a world with fewer, better-run schemes as being in the interests of all key stakeholders."
