News for trust-based schemes
Over the last year, the DWP has launched two key consultations for DC occupational pension schemes which would have an impact on trustees and employers who operate their own-trust scheme or participate in a master trust arrangement:
1) the September 2020 consultation on improving member outcomes (covered in the September 2020 edition of Vision), which considered value for members and encouraging consolidation where value for members is not being provided or demonstrated; and
2) the March 2021 consultation on incorporating performance fees within the charge cap (covered in the May 2021 edition of Vision), which considered how the charge cap is measured and whether there is a method that would support incorporating performance fees and allowing access to a more diverse range of assets.
In June 2021, the DWP issued a combined response to these consultations. The key points for trustees to be aware of are:
The proposal for the new requirements to apply to schemes with less than £100m assets under management and that have been in operation for three years or more at the assessment date will come into force. This will mean that trustees will need to undertake a more detailed value for members assessment of some elements compared against three ‘large’ schemes (i.e. with assets of £100 million or more). However, there were key changes:
Larger schemes will be able to voluntarily adopt the new requirements if they wish.
As a reminder, the new value for member assessment must assess the following factors:
In the Chair’s statement, all DC schemes will need to report investment performance net of the scheme’s actual fees for the default investment strategy and self-select fund range.
As well as the current retrospective method and prospective method of testing against the charge cap, it will now be possible to undertake a 5-year smoothing of charges. This will come into force with effect from 1 October 2021.
To support trustees with the new duties, statutory guidance has been published here.
Trustees should begin to plan for the upcoming changes in regulations. Although the deadlines for reporting requirements may be some way off for many schemes, these reflect back on the whole scheme year. Therefore, preparation for these should begin in early 2022.