Following the Mansion House reforms proposed last year and subsequently the various pre-Budget and Budget 2024 announcements regarding further government-proposed Value for Money (“VfM”) initiatives, TPR has continued the focus on ensuring members of Defined Contribution (“DC”) schemes receive value for money, by announcing its own initiatives in March. 

TPR’s pilot initiative on existing Value for Members (“VfMe”) requirements

TPR’s recent increasing focus on VfM and VfMe in respect of DC schemes no doubt partially stems from supporting the government’s drive to increase regulation in this area.  As mentioned above, the Mansion House VfM reforms will build on the existing VfMe requirements for small schemes and apply a new VfM framework for all DC schemes. But it is also TPR actioning the findings from its pilot initiative which it had undertaken in relation to existing VfMe requirements and also separately, industry findings regarding VfM – see more on the latter below. The initial results of TPR’s pilot initiative on VfMe requirements were published towards the end of March. The initiative was launched in order to assess if DC schemes were benefiting from the existing VfMe rules that require trustees to assess whether they are delivering value for members. To recap, specific VfMe requirements apply for trustees of DC schemes with assets under management (AUM) of less than £100million; they have had legislative requirements to meet in this regard since October 2021. One of the key requirements is that the trustees undertake a more detailed assessment of value for members and that those failing to deliver value must set out a plan to improve, or transfer members to a better-value scheme and consider winding up their scheme.

Alongside that, the DWP’s statutory VfMe guidance provides that if, having completed the VfMe assessment,  trustees conclude that the scheme does not provide value for members, they should look to wind up the scheme and transfer members' rights into a larger occupational or personal pension scheme, or set out the immediate action they will take to make improvements.

TPR reported that 16% of schemes from the pilot initiative had in fact opted to wind up their schemes having concluded that they do not offer good value.  Mel Charles, TPR’s Interim Director for Frontline Regulation, said that it was encouraging that TPR’s initiative had found that "schemes are now actively choosing to wind up in the face of the new regulations". 

Next stage of TPR’s assessment of VfM including increasing regulation

Following the publication by TPR of the results of its pilot initiative, TPR also announced that it had launched a full-scale exercise to assess compliance with the more detailed VfMe assessment mentioned above.  

In order to do so, TPR has indicated that it will be scrutinising scheme returns of DC schemes and may issue fines for non-compliance with the VfMe requirements. As part of launching this new VfMe assessment exercise, TPR announced that it is rolling out a new regulatory initiative on VfMe for DC members. It has confirmed that it will take ‘tough’ action against pension schemes that fail to deliver value to members and that it will issue fines to corporate trustees that fail to comply. 

TPR has publicised as a warning that it has already issued a penalty of £12,500 against a corporate trustee for providing poor value to members.

TPR’s blog on VfM

In a recent blog on the broader VfM framework which TPR is developing with the DWP and the FCA further to the Mansion House reforms and the 2024 Budget announcement, Nausica Delfas, noted that “As a regulator, we will increasingly use disclosure of value for money and other data to constructively challenge trustee decision-making so that savers’ interests are really being met. But we also expect trustees to be asking tough questions of themselves and their advisers”. 

So it seems clear that not only trustees, but their advisers too, will need to ensure their approach and advice to assessing VfM is sufficiently robust and can be soundly defended should it be challenged, in order to meet TPR’s expectations regarding ensuring VfM for members and to avoid the risk of any regulatory action being taken against trustees. 

Work in progress on VfM requirements

In amongst the launch of TPR’s various initiatives outlined above, at what seemed to be a very timely moment, Mercer published a report entitled “Value, risks and outcomes: How to achieve value from your DC pension scheme”. The report contains detailed analysis taken from Mercer’s audit reviews of over 360 DC pension schemes, covering over three million UK members and over £50bn in DC savings.  According to the report, 68% of respondents admitted they had failed to review their pension scheme design in the last few years and 34% of employers have not reviewed member fees within the last three years. 

Speaking about the report, Ken Anderson, DC and Financial Wellness Principal at Mercer, said: “Our second annual survey of DC pension schemes reveals a number of key areas where employers can do more to ensure they are achieving best outcomes for members… “.

Therefore, this report seems to evidence that TPR’s increased focus on VfMe and greater intervention in order to police compliance with it going forward, is necessary as there still appears to be some work to be done in order to properly embed the VfMe requirements in DC schemes, both with trustees and sponsors. 

Going forward

In terms of what is still to come in the near future for VfM and DC schemes, further to the Mansion House reforms mentioned above, the FCA is to consult on detailed rules for the new VfM framework in Spring 2024. This consultation should include detail of the full range of regulatory powers that it is proposed the FCA and TPR be given in to ensure adherence by schemes and employers to the VfM framework. As has already been announced, this will include a power to ban poorly performing DC arrangements from taking on new business from employers and associated intervention powers, including both the power to close a scheme to new joiners and, if appropriate, wind up a scheme.

How we can help you

We advise personal pension providers and trustees of defined contribution and hybrid occupational pension schemes. We can assist you with reviewing your scheme and whether it complies with the VfMe rules and, if not, possible actions to consider taking account of DWP’s statutory VfMe Guidance. In the meantime, if you have any questions about the VfMe requirements or the new VfM framework and what they mean for your scheme, please do get in touch with Susannah Young or your usual contact in the Burges Salmon Pensions team.