In July the DWP, Pensions Regulator (TPR) and FCA published a response to their consultation "Value for Money: A framework on metrics, standards and disclosures". The consultation proposed that trustees of DC schemes (as well as providers and governance committees of workplace personal pension schemes) should be required to disclose, assess and compare the value for money (VFM) provided by their workplace pension scheme. The proposals are intended to encourage greater standardisation of reporting, allowing trustees to make more informed investment and governance decisions and employers to better compare DC schemes when choosing where to automatically enrol their employees. The Government intends that the Value for Money (VFM) framework will over time replace the existing "Value for Members" assessment required of trust-based DC schemes with under £100 million in assets under management.
Timescale and next steps
The consultation response says that the VFM framework will be introduced in stages and that the Government's primary focus is on workplace default arrangements. The proposals will require an Act of Parliament, and the Government says that it plans to legislate "when parliamentary time allows". It will also conduct further consultations on draft regulations.
Metrics
The Government plans to introduce a metric related to gross investment performance. Costs and charges data are to be disclosed separately. The Government intends to proceed with reporting periods of 1, 3 and 5 years, with 10 and 15 if available. The Government thinks the main focus for comparisons should be returns over at least 5 years.
On the issue of quality of service, the response says that the number of complaints a scheme receives (both internal and external) relative to number of members would be useful metrics to measure quality of service. The Government will also work with industry to develop a standardised member satisfaction survey.
Reporting requirements
The Government intends to prescribe a template to ensure consistent reporting on the VFM metrics. It will require VFM assessments to be conducted and published annually. VFM assessments will have to be published by the end of each October in respect of the previous calendar year. The Government plans to proceed with a "RAG" (red/amber/green) rating to allow comparisons between schemes.
The Government will consider how the current requirements for a chair's statement could be "managed down" and ultimately phased out as the new VFM framework is phased in.
Our thoughts
Once in force, the new VFM requirements appear likely to impose significant additional compliance requirements on trustees of DC schemes. However, the Government has not committed to a timescale for introducing the changes and there appears to be significant additional work that will need to be completed before the changes are brought into force.
The response says that, according to TPR's 2022 DC Survey, only around a third of schemes with assets under £100 million were aware of their obligations under existing "Value for Members" assessment requirements. This suggests that the Government's goals in this area are unlikely to be achieved through legislation alone.
