Pensions

consistent measurement and disclosure – firms must measure and publicly disclose investment performance, costs, and service quality against specific metrics
assessment by Independent Governance Committees (IGCs) – IGCs and Governance Advisory Arrangements (GAAs) will assess performance against other arrangements on a consistent and objective basis
public disclosure of outcomes – firms must disclose assessment outcomes, including a "red, amber, green" (RAG) VFM rating for each arrangement
actions for poor value arrangement – firms must take specified actions if an arrangement is assessed as not providing value for money (red or amber rating).

The framework is designed to drive competition and improve long-term value across the DC market, ensuring that pension schemes deliver value for money beyond just low costs and charges.

The consequences for poor value arrangements range from requests to scheme trustees to improve their VFM to being directed to transfer members out.

Many small or newer schemes may struggle to compete with larger schemes, which may result in a consolidation into larger schemes. The consolidation into larger schemes is something that the DWP and TPR have openly set out as a policy goal.

What action should you take?

Trustees should seek to familiarise themselves with the proposed framework and in particular, the information requests they will be subject to. Trustees may also want to look at their data collection and analysis processes to make sure that they are able to generate the information the IGCs are likely to ask for.

Key dates

The consultation has now closed and the FCA has stated that it would publish feedback on the responses in due course. Any rollout for the VFM is therefore unlikely to take place until the end of 2025 at the earliest.

Rachael Healey
Partner
+44 7545 100504
rachael.healey@rpclegal.com

Cory Gilbert-Haworth
Associate
+44 7858 193073
cory.gilbert-haworth@rpclegal.com

Recent developments

New compliance and enforcement rules for collective defined contribution schemes

The Pensions Regulator (TPR) has unveiled its new compliance and enforcement policy for collective defined contribution (CDC) pension schemes. The policy outlines TPR's risk-based regulatory approach and provides a clear framework for how it will supervise these schemes.

The key aspects include:

authorisation and supervision - CDC schemes must be authorised by TPR to operate. To gain authorisation, CDCs must have the right people, systems and processes, continuity plans and financial support to safeguard members
annual evaluation reports - as part of its supervisory role, TPR will provide CDC scheme trustees with an annual evaluation regulatory report. This report will summarise TPR’s evaluation of the scheme, the intended supervisory intensity, key risks observed, expected actions, and the planned engagement timetable. The intensity of supervision will be adjusted based on the scheme’s risk level

risk notices and corrective actions - TPR now has the authority to issue pause orders and risk notices. A pause order is aimed at limiting the range of activity trustees can undertake during the pause order period. A risk notice will be issued if it believes a CDC pension scheme is not being effectively managed, governed, or funded. These notices will require trustees to plan and implement corrective actions and may be issued where there are concerns about a scheme breaching its authorisation criteria, serving as a precursor to more severe actions like de-authorisation
consequences of non-compliance - trustees and administrators must actively co-operate with TPR. Failure to do so could result in the de-authorisation of the scheme.

Conclusion
TPR’s new compliance and enforcement policy for CDC pension schemes represents a significant step in ensuring these new schemes are well-managed and secure for savers. Trustees of CDC schemes – which are likely to increase in number over time once multi-employer schemes are permitted – will need to understand and adapt to these new regulations to ensure compliance, and Pension Trustee Liability (PTL) insurers should note the potential risk to investigation costs.

Rachael Healey
Partner
+44 7545 100504
rachael.healey@rpclegal.com

Cory Gilbert-Haworth
Associate
+44 7858 193073
cory.gilbert-haworth@rpclegal.com