Small defined contribution (DC) schemes failing to compete with better governed larger ones are being urged to consider winding up.
After issuing almost £100,000 in penalties to small DC schemes for governance failures related to the more detailed value for members (dVFM) assessment, The Pensions Regulator (TPR) said it wanted trustees that cannot compete with the industry’s best to think about whether their savers would be better off in a larger scheme.
In 2021, new rules came into force requiring certain schemes to complete the dVFM assessment to enhance transparency, improve governance and reduce the risk of savers receiving poor value.
However, TPR research in 2021 showed just 17% of schemes required to complete assessment had done so, and 64% were unaware of this statutory obligation.
In response, TPR launched a large-scale regulatory exercise, running throughout 2023 and 2024, which included probing DC scheme returns to ensure compliance with this clear governance requirement.
TPR’s compliance and enforcement bulletin, published today (Thursday) showed TPR had increased its use of powers in relation to dVFM assessments between July and December 2024 compared with the first half of that year.
Since it launched its initiative, TPR said it had issued penalties to 19 schemes making the overall total in fines £97,750.
Gaucho Rasmussen, TPR’s Executive Director of Regulatory Compliance, said: “All savers deserve to be in schemes with good governance.
“Where trustees cannot compete with the best in the market, either in terms of value or governance, they should consider whether a transfer to a better-value scheme and winding up is what is best for their savers.”
As well as ensuring compliance with dVFM regulations, TPR, along with the Financial Conduct Authority and the Department for Work and Pensions, is working in partnership to develop a value for money framework.
This will improve the value schemes deliver for savers by standardising the assessment process, enabling comparisons to be made across the DC landscape including contract and trust-based schemes.
TPR is also introducing a more proactive supervisory approach to improve the quality of trusteeship, with a greater emphasis on providing value.
Use of AE powers remains consistent
The compliance and enforcement bulletin also showed that in the six months up to December 2024, to ensure employers comply with their AE duties, TPR issued:
- 31,740 Compliance Notices compared to 30,688 in the previous period
- 18,254 Unpaid Contribution Notices compared to 18,589 in the previous period
- 21,504 Fixed Penalty Notices compared to 20,677 in the previous period
- 7,608 Escalating Penalty Notices compared to 7,682 in the previous period
Mr Rasmussen added: “Our use of automatic enrolment powers has remained consistent, with compliance continuing to remain high. Through the compliance and enforcement demonstrated in this bulletin, this period saw 97% of employers pay their workers’ contributions in on time.”
Employer compliance with AE duties remains high, but TPR said it will take action to address where employers are not doing the right thing for their staff.
It added it will continue to evolve its approach to AE regulation, including looking at innovative solutions, using new technologies and improved user experience, to make it as easy as possible for employers to comply, reducing the need for direct intervention.
TPR saw a slight increase in its wider use of powers to regulate pension schemes, from 229 in the previous period to 289 in this latest period. This increase is broadly in line with the fluctuations in volumes seen year on year.
Notes to editors
- TPR launched its value drive in March 2023.
- The DC trust-based pension scheme research (PDF, 2,191KB, 47 pages) comprised 342 quantitative telephone interviews of regulated DC schemes, with fieldwork being undertaken in October and December 2022. All respondents were asked questions on meeting the key governance requirement relating to value for members (VFM), awareness of the VFM assessment, the proportion that have completed this, and any barriers encountered in doing so. Published in July 2023 it showed there was a lack of awareness from small schemes around new value for members assessments.
- TPR is the regulator of work-based pension schemes in the UK. Its statutory objectives are to:
- protect members’ benefits
- reduce the risk of calls on the Pension Protection Fund (PPF)
- promote, and to improve understanding of, the good administration of work-based pension schemes
- maximise employer compliance with automatic enrolment duties
- minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only)
