Chair Statement changes from October 2021

Completing the new value for members (VfM) assessment and reporting net investment returns

New guidance has been issued for trustees of ‘relevant occupational pension schemes’ which, regardless of size must, from 1 October 2021, comply with requirements to report past investment performance (net returns). This information must be recorded in the annual chair’s statement.

The guidance is also for trustees of ‘specified schemes’ which, for their first scheme year that ends after 31 December 2021 and at intervals of no more than one year thereafter, are required to carry out a more detailed and prescribed value for members (VfM) assessment. The outcome of the VfM assessment must be reported in the annual chair’s statement and reported to The Pension Regulator (TPR) via the annual scheme return.

The definition of ‘relevant scheme’ covers most occupational pension schemes that provide money purchase benefits (including hybrid schemes) other than a scheme that provides no money purchase benefits apart from additional voluntary contributions (AVCs).

A ‘specified scheme’ is a relevant scheme which, on the relevant date (the date on which the trustees obtained the audited accounts for the scheme year that ended most recently) held total assets worth less than £100 million and has been operating for three or more years. (Trustees of relevant schemes with total assets of £100 million or greater must continue to assess and explain how the costs and charges of their scheme generally represent value for members in their chair’s statement and, in this regard, TPR and the FCA have just published a joint discussion paper on developing a common framework for measuring VfM.)

The guidance

Reporting net investment returns

Trustees must report on the ‘net investment returns’ for their default arrangement(s) and for each self-select fund in which members are invested during the scheme year. Net investment returns refers to the returns on funds minus all transaction costs and charges.

The information on net investment returns must be stated in the annual chair’s statement for the first scheme year ending after 1 October 2021, and published on a publicly available website.

Annual Value for Members (VfM) assessment

From the first scheme year ending after 31 December 2021, trustees of specified schemes, unless they are in the process of winding-up, are required to carry out a more detailed VfM assessment prescribed in regulations.  This must involve a comparison of reported costs and charges and fund performance (net investment returns) with 3 other schemes, and a consideration of key governance and administration criteria.

The outcome of this assessment must be explained in the annual chair’s statement and published on a publicly accessible website. The outcomes must also be reported to TPR via the annual scheme return.

The rationale of the new prescriptive VfM assessment is to determine whether members will receive this value in their existing scheme over the long term, or whether they would achieve better value in a different scheme.

Comment

Trustees of affected schemes will soon need to begin collating the information they need to conduct the more detailed VfM assessment, particularly if their scheme year ends during the first half of next year. They will need to engage with their advisers for additional, comparative, information and with their administrators to assess governance and administration.

For many schemes, the VfM assessment and, in particular, the first one will be a substantial piece of work, involving several scheme stakeholders. So, ‘starting early’ is recommended.

Trustees should also discuss the new requirements with their pension scheme sponsoring employers, as plans for the scheme may impact the actions that trustees need to take (e.g. taking into account further governance requirements from next year, such as Own Risk Assessments, the employer may already be considering whether to replace the current scheme with a different one).