What can trustees do to demonstrate that they are assessing, and attempting to improve, value for money? Nick Boyes, independent trustee and diretor of Able Governance explores
According to the Regulator’s website, there were 34,730 DC schemes in the UK at the end of 2015. That translates into a lot of chair’s statements, and lots of time spent trying to determine value for money.Home
The data suggests that roughly a third of these schemes are ‘bundled’ arrangements. This means that all aspects of setting up and running the scheme are provided by an insurance company. That includes the declaration to establish the trust and appoint the trustees, the investment of contributions, the administration of member funds, the literature given to the members, etc. The adviser who helped the employer set up the scheme will probably hae been rewarded by commission, paid by the insurance company, based on the level of contributions.
The point of this history lesson is that trustees for this type of scheme have generally been pretty passive. They didn’t choose the provider, they didn’t chose the default fund or the charging structure, and they don’t have much leverage with the provider to make significant changes to the offering.
So, what can these trustees do to demonstrate that they are assessing, and attempting to improve, value for money? This has to start with an assessment of each element of the scheme:
- the charges and how these are divided between the employer and the member;
- the design and performance of the default fund, and other funds available to members;
- the administration aspects such as the collection and allocation of contributions, handling of queries and issues etc;
- the quality of the literature provided by the insurance company, including member statements and any calculation and modelling tools, and general information available on the website.
After this stock-take the trustees should attempt to make some comparisons with the offerings of other providers. This may prove difficult with the auto enrolment exercise going on in the background. Insurance companies are fully stretched on-boarding new schemes and may be reluctant to be helpful to an existing scheme, that will probably be looking to press them on charges.
Without the help of an IFA who is active in the corporate pensions market, I think trustee boards are going to struggle to make these comparisons. Even with an IFA the landscape has changed. The adviser will no longer have the prospect of commission payments for moving a scheme to a new provider. They will expect, and deserve, a fee for using their knowledge and skills.
Will the employer be happy to pick up the tab? Some will, recognising the value to be gained from having an occupation pension scheme that delivers good outcomes for employees. But many won’t see this as good value for them, especially if they have had to set up a parallel scheme for auto enrolment.
The outcome of this exercise is that the trustees may conclude that the scheme does not offer value for money, but that there is little they can do to improve the situation. Winding up the scheme and moving the funds to a mastertrust or contract-based arrangement may help to achieve better value for money due to economies of scale and all of the advantages that this brings.
This shouldn’t be seen as a failure on the part of the trustees, but a rational response to an evolving landscape. Recognising that there is little scope to improve the value for money offered by an existing scheme may be the most honest step to take and actually help to improve the outcome for members.
Nick Boyes is an independent trustee and director of Able Governance