TPR urges smaller DC pension schemes to show value or wind up

The Pensions Regulator (TPR) has urged small defined contribution (DC) schemes to show that they offer value or wind up, after research revealed that trustees of most small schemes are unaware of new value for member duties.

TPR’s annual survey of DC pension schemes found that two-thirds of schemes with less than £100m in assets under management were unaware of new requirements to carry out a more prescriptive value for members assessment.

Of those that were aware, just over of half (51 per cent) had carried out an assessment of the scheme’s governance and administration, while only 10 per cent had compared net investment returns against three other schemes, and 17 per cent had compared costs/charges.

Concerns were also raised over the time and resources being spent on climate-related issues, as the results suggested that smaller DC schemes are "far behind" larger ones.

Indeed, whilst every master trust and nine in 10 large schemes had allocated time or resources to assessing financial risks and opportunities associated with climate change, this fell to just over half (55 per cent) of medium schemes, 9 per cent of small schemes, and 5 per cent of micro schemes.

Commenting on the findings, TPR executive director regulatory policy, analysis and advice, David Fairs, urged smaller schemes to demonstrate the value they offer or wind up, arguing that "no saver deserves to be left stuck in a small, poorly governed scheme which doesn’t offer the same value as a larger one".

He continued: "Sadly, our survey shows this remains the reality for some savers, which strengthens our belief that consolidation is the answer for many small schemes.

“Where trustees of smaller schemes can’t show that they provide this value, we expect them to either wind up or take prompt action to make improvements."

Fairs also warned trustees against waiting for legislation to act on climate issues, emphasising that "all pension schemes, regardless of size, are very likely exposed to climate-related risks and opportunities".

"In managing risks effectively, all trustees should explore how climate change might affect long-term investment goals, their employer covenant and the opportunities that will come from a global pivot towards low carbon economies," he explained.

Fairs also highlighted concerns around the number of trustees that were utilising TPR's codes of practice, as the report found that 43 per cent of micro and 31 per cent of small schemes were unaware of TPR’s codes of practice or had never used them.

Smaller schemes were also less likely than larger schemes to be aware that TPR’s codes of practice are due to be replaced by a single code of practice, as survey found that only 20 per cent of micro and 28 per cent of small schemes were aware of the upcoming single code.

However, Fairs stressed that being aware of relevant codes is a "very basic expectation of trustees", suggesting that trustees should consider winding up and consolidating if they cannot meet this "very basic standard".

In the research, micro schemes were defined as being those with fewer than 12 members, while small schemes included those with 12-99 members, and medium schemes included those with 100-999 members.

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