Trustees are now obliged by the regulator to assess the value of their schemes. So how can they tackle what would seem to be a very subjective task? Louise Farrand explores.

It could be a beaten up old Ford that you snap up for a song. It could be a brand new Mercedes that lasts a lifetime. You may be a committed Waitrose shopper, or head for Lidl.

VFM cars

Whatever you’re buying, clearly there are many different definitions of value for money. Yet proving their pension scheme offers good value is a challenge that defined contribution trustees must accept.

The introduction of auto-enrolment has been accompanied by a regulatory drive to quantify the value members are receiving.

Both the Pensions Regulator (which regulates trust-based schemes) and the Financial Conduct Authority (which governs contract-based schemes) now require pension schemes to assess value. The FCA terms this ‘value for money’ and the Pensions Regulator ‘value for member’.

There needs to be some focus on making sure that they get value for the money”

Why this onus on value? Chris Curry, director of the Pensions Policy Institute, says: “We now have 6 million new savers, rising to 9 million over the next few years, many of whom may not be aware that they are saving. There needs to be some focus on making sure that they get value for the money that they’re saving.” 

Paul Leandro, partner at consultancy Barnett Waddingham, says: “Arguably, the pensions industry has been going through an upgrade process for a number of years.”


The Pensions Regulator has published two documents that seek to answer some of the questions raised on any trustee board’s value for money quest.

The first is a draft update of the DC code, published for consultation in November 2015. The code was revised to take account of the plethora of changes that have happened since its publication in 2013, and has a chapter outlining the principles of how trustees should assess value for money.

The second document is a draft guide to value for members. It’s a user-friendly document outlining how the regulator suggests trustee boards should approach the issue in practice.

Among the thorny issues that trustees must address, investment is where much of the value for member debate is raging.


There’s a reason for this. With a plethora of different investment strategies available to trustee boards, it’s very difficult to compare like with like. Parts of the investment industry have also earned a poor reputation by obfuscating charges.

To some extent, the government has taken some of these problems out of DC trustees’ hands by introducing a charge cap of 0.75% for default funds.

The Pensions Regulator, needless to say, is not calling for trustees to race for the cheapest investments. In the DC code, it emphasises: “Value for members does not necessarily equate to ‘low cost’, notwithstanding that the law puts in place certain charge limits on some schemes.”

Value for members does not necessarily equate to ‘low cost’”

While the regulator makes no recommendations on the benefits of any particular investment strategy, it is seeking to tighten the net on transaction costs.

The revised code says: “The law requires trustee boards to calculate at least annually the charges and, insofar as they are able to, transaction costs (incurred as a result of buying, selling, lending or borrowing investments), to which members’ funds are subject; and to assess the extent to which they represent good value for members.”

What should trustees do if asset managers are either unwilling or unable to provide them with transaction cost data?

Keep pushing, the regulator urges. The draft code makes it clear that the chair of the pension scheme will need to explain why they were unable to obtain transaction cost information, and the steps they are taking to get it.

The chair of the pension scheme will need to explain why they were unable to obtain transaction cost information”

Another tricky issue is how to assess what savers consider to be good value, when faced with often disengaged scheme memberships.

The regulator’s word on this is: “We expect trustee boards to make efforts to understand the characteristics of their members and, where possible, their preferences and financial needs, and to take this into consideration when exercising their judgement about what represents value for members.”

This would include taking into account characteristics such as the demographic and the salary profile of the membership.

The code continues: “Where direct member feedback is limited, we expect trustee boards to consider what alternative methods they can use to assess what represents value for their members. This might include using publicly available industry research reports to compare their scheme to similar schemes.”


Consultancies are aware of the difficulty of assessing value – and are developing frameworks to turn the abstract into the tangible. Leandro says that Barnett Waddingham divides its value for money assessment into two categories: absolute and relative. 

For the absolute part, Leandro’s clients would be assessed on their investment performance, costs and charges, efficacy of communications and member engagement, and administration. “Good administration doesn’t necessarily lead to good value but poor administration can certainly lead to poor value,” he says. 

Poor administration can certainly lead to poor value”

The second part of the assessment compares relative value for money. The consultancy compares one client against its peer group, a direct competitor or, if the client runs two DC schemes, one against the other.

Other consultancies are thinking along similar lines. Steve Butler, chief executive of Punter Southall explains that the firm has identified a peer group of investment products and is now evaluating specific funds against their main competitors in some detail, as well as looking at standard benchmarking.

Punter Southall’s work in this area goes beyond pure investment. This is important, given that the regulator expects schemes to assess four key areas: scheme management and governance, administration, investment governance and communications.

“We’ve been building up a database of governance analysis from all our clients so that when we report on value for money issues, we put it on a slider, compare it across the rest of Punter Southall’s clients and at least we can start to build a feel for how they compare,” says Butler.


Measuring value for money is a challenging exercise. Leandro believes that the increase in governance reporting requirements could mean the end for employer-run trust-based schemes.

He says: “The increase in governance burden is a catalyst, certainly, for the employer who has been thinking about the future of the trust-based scheme. If they move to mastertrusts, it takes away the burden of assessing value for money.

The increase in governance was the death knell for trust-based schemes”

“Australia went through a similar process and the increase in governance was the death knell for trust-based schemes. There’s been a huge exit into contract-based schemes over there.”

Indeed, Australia the number of employers operating single trust schemes has fallen by over 96% in 11 years. 

But although it’s challenging, assessing value for money is not mission impossible. Barker says: “From a legal perspective, there isn’t a single right answer, so the way trustees will be judged is less on their conclusions and more on the process to get there. Providing a board takes account of relevant factors and follows a sensible process, the decision they reach should not be open to challenge by members.”