Facing up to your new duties?

If so, you’ll be aware that the DWP have been writing you rules (and the Pensions Regulator enforcing them).

Since 2016 you have written an annual chair statement and you will now have to publish information online for your members to see.

The statement has to include a statement of the value you think your scheme is offering your members and as part of this you have to report transaction costs “as far as you are able”.

The timeframe for doing this is now upon you for you have only 7 months post your first scheme year end after January 2018 to get this done.

Let’s remind ourselves of what the Pensions Regulator is after

The law requires trustee boards to calculate at least annually the charges and, insofar as they are able to, transaction costs (incurred as a result of buying, selling, lending or borrowing investments), to which members’ funds are subject; and to assess the extent to which they represent good value for members^[52]. Trustee boards must explain their assessment of value for members in the annual chair’s statement (see the Communicating and reporting section)^[53]. We expect this explanation to address how they have carried out the assessment, and the conclusions they have reached. We also expect the evidence trustee boards have used to arrive at their conclusions to be documented contemporaneously.

[52;  regulation (see picture above)

When it comes to “value”, the Pensions Regulator has had various formulations over the years. The original value factors were only 5 but were replaced by 37 and are now back to four.

• scheme management and governance
• administration
• investment governance
• communications

I would be very surprised if many, if any, members of occupational pension schemes valued or even understood any of these measures. However, there is an extensive guide for trustees to assess value for members, which breaks the four measures into 21 sub measures and breaks the value assessment process into four steps with a lengthy section on ongoing monitoring.

In short, what the Pensions Regulator is after, is an internal audit of the functioning of the scheme while what members are after is a simple measure which tells them if the scheme is any good.

What members are after

The only questions on the mind of members are “what’s my pot worth?” , “what will it give me when I need to spend it?” and “should I transfer this pot or leave it where it is?”

The Chair of the Trustees statement is not meant to be a sales brochure for the scheme but a frank and honest answer to the questions that members might reasonably be asking.

In asking questions about whether the pot is any good, the member is asking the underlying question “is it my best option”. The Pensions Regulator wants Trustees to seek out best practice among peers

You should review your approach to the value for members assessment each year and consider whether it remains fit for purpose in light of external market developments, changes to your scheme’s membership demographic, growth in scheme assets and your medium- to long-term strategy for the scheme.

To support this process, you could consider meeting or sharing information with other trustee boards to compare approaches and discuss ideas. You may also wish to consider whether there are opportunities to learn from practices and approaches adopted by independent governance committees in relation to contract-based schemes offering money purchase benefits and meet with them or share information where appropriate

But this approach is of no relevance to members who are interested in best outcomes.

I have studied the extensive literature produced by the Pensions Regulator and have to conclude that it simply doesn’t address the fundamental questions that members ask.

A meaningful Chair’s statement

Members are asking three questions of their occupational pension

1.”what’s my pot worth?” ,

2 “what will it give me when I need to spend it?” and

3.”should I transfer this pot or leave it where it is?”

I think it unlikely that I will read a single Chair’s statement this year that will answer these questions.

Instead, the statements will focus on scheme management and governance, administration, investment governance and communications. The statements will remain unread and your time will have been wasted.

I would like you to consider offering your member’s a meaningful Chair’s statement that focussed on what your member’s questions are, giving answers based on an independent assessment of the value for money the scheme offers.

Here is an example of such a statement.

All the metrics you could need on a single screen.