Things to scare the chair of a DC scheme: number 4

Topic:

Hot topic

Date published:

Friday, 18 December 2015

Author:

Simon Riviere

Value for money

A key responsibility of the DC Chair is to assess whether the scheme provides members with ‘value for money’ (VFM). The trouble is it can be difficult to know what this actually means. There is no accepted definition or mandatory guidance currently in place to direct the DC Chair, although some guidance has recently been issued by TPR and FCA and other organisations, such as Cass Business School, have added to the debate.

New ideas for the design of default strategies are emerging taking into account member dynamics and with the likely manner in which benefits will be taken predicted on pot size. When judging VFM, the net performance of investment strategies need to be reviewed to ensure alignment with member or policyholder best interests. The monitoring of core financial transactions and level of charges should also be considered.

Scary thought

Whilst the uncertainty about what exactly VFM is and how it should be measured and communicated to members remains, contract-based schemes need to act now. The timescale for the DC Chair to produce a governance statement that meets FCA (for IGCs and GAAs) and The Pension Regulator (for trust based arrangements) requirements is short, as it must be put in place in 2016. Depending on the complexity of the workplace pension scheme, this could be a daunting task.

This 'scary thought' series runs up to our Scary DC Breakfast in January 2016. This roundtable is designed for Chairs and trustees of defined contribution pension schemes, pensions managers, finance directors and other employer representatives. Register to attend here.

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