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TPR warns small schemes: prove value or wind up

TPR warns small schemes: prove value or wind up

The Pensions Regulator has warned smaller defined contribution pensions schemes they will need to demonstrate their value to members or wind up as more stringent rules come into force next month. 

From October small schemes will have to undertake more rigorous value for money assessments and report the outcome annually to the regulator. 

The rules mean trustees of DC schemes with less than £100m in assets must compare their scheme’s costs, charges and investment returns against three other schemes. 

They must also carry out a self-assessment of their scheme’s governance and administration in line with seven key metrics.

As part of the new rules, where trustees fail to demonstrate their scheme offers value, they will be expected to wind up and transfer their members into an alternative scheme.

If they do not propose to do this, they must explain why and what steps they are taking to ensure their scheme does offer value.

David Fairs, TPR's executive director of regulatory policy and advice, said: "The success of automatic enrolment has seen more people than ever before saving into defined contribution pension schemes.

"These millions of savers should benefit from the best retirement outcome possible. To ensure this, savers must not be left languishing in poorly governed schemes which do not offer the same value as larger schemes.

"Where smaller schemes are not able to demonstrate they provide this value it’s right they either wind up or take immediate action to make improvements."

To help schemes prepare the new assessment, TPR has updated its guidance. 

Value for members assessment

The more detailed assessment will see smaller schemes assess the quality of their administration and governance with reference to seven key metrics and compare their costs and charges and net returns against three other schemes.

The requirement will apply to schemes that have:

  • less than £100m in total assets;
  • been in operation for at least three years;
  • not notified TPR they are in the process of winding up;
  • a most recent year-end that falls after December 31, 2021. 

Trustees of schemes that started to wind up before the deadline for their annual chair’s statement, which will include the assessment, do not need to prepare a more detailed assessment, provided they have notified TPR of their scheme’s new status.

Until the scheme is formally wound up, trustees must continue to prepare a VFM assessment in the format which they have done so to date and continue to provide an explanation of this assessment in their chair’s statement. 

They must also explain why they’re not carrying out the more detailed version.

This comes as last week, TPR and the Financial Conduct Authority published a joint discussion paper on value for money, to force defined contribution schemes to disclose more data around their investment performance, scheme oversight, and costs and charges.

The government initially announced draft measures in September last year, stating the new rules were “aimed at improving saver outcomes, and supporting the economy by promoting investment in green technology and infrastructure by pension schemes”.

sonia.rach@ft.com

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