This blog was written by Leonardo Robinson and David Morris

The DWP has published plans to encourage defined contribution (DC) pensions schemes to diversify their investment and increase scheme consolidation.

Value Assessment: Encouraging DC Scheme Consolidation

The proposals target smaller DC schemes (those with less than £100m in total assets) with a new requirement to complete a “value for members” assessment. New schemes operating for less than three years will be exempt from the assessment.

There is good news for qualifying SSAS and executive pension schemes.  The new proposals build on the requirement to assess value for money in scheme charges and so those schemes will continue to enjoy the same exemptions.  Schemes which think they might be exempt should take the opportunity to revisit their scheme rules for peace of mind.

For those schemes which will be caught by the new regulations, the assessment will measure against costs/charges and net investment returns. These factors are to be assessed relative to three larger schemes (with £100m or more of total assets) of which one must be willing and capable to accept the members and transfer of benefits from the smaller scheme. Schemes will also need to asses the trustees' level of knowledge/skills, and a range of other administration and governance requirements.

Trustees of schemes that fail to demonstrate that they are providing appropriate value for their members would have to take immediate steps to wind-up or merge into a larger scheme. Schemes can avoid consolidation in “exceptional circumstances” if the trustees can improve value “both rapidly and cost effectively” and where the wind-up and exit costs exceed the costs of making appropriate improvement.

The £100m asset level may come as a surprise to some - in its original February 2019 policy proposals the Government was considering a threshold of £10m or fewer than 1000 members.