Rita Butler-Jones of Legal & General Investment Managment answers questions on the new regulatory framework for DC schemes and master trusts
What is the new regulatory framework for DC schemes and why is there a push to consolidate schemes?
From 31 December 2021, new regulations were introduced requiring DC schemes to carry out extended value for money assessments and report back on whether consolidation into another scheme would improve outcomes for their members.
If the assessment shows that the current scheme isn't offering good value for money, then the trustees or administrators should transfer their members' benefits to one that does, or provide a good reason for not doing so.
These new reporting obligations currently only affect DC schemes with assets under £100m.
What does this mean for trustees and employers that operate ‘own trust' schemes?
Trustees and administrators of certain DC schemes must annually assess the value for money of their current pension plan against three others.
The findings of these ‘value for money' or ‘value for members' assessments must be reported in the annual chair's statement and cover costs and charges, fund performance (investment returns) and quality of governance and administrative services for the schemes being reviewed. Trustees and administrators must also publish a recommendation of whether the scheme's membership should be consolidated into one that could offer them better outcomes.
Please note that schemes that move straight into a master trust are not required to carry out these assessments.
Meanwhile, Legal & General's WorkSave Mastertrust is open to accepting transfers from own trust schemes and we're happy to discuss this with interested parties.
What considerations might prompt schemes to investigate moving to a master trust?
Determining the value of a pension scheme is about more than costs and charges. Any assessment should consider net investment returns, and governance and administrative services.
Assessments of administration and governance should look at a scheme's promptness and accuracy of core financial transactions, quality of record-keeping, default investment strategy, quality of investment governance, level of trustee knowledge, understanding and skills, management of conflicts of interest, and quality of member communications.
Legal & General aims to provide additional value through the following:
Member engagement:
• Our annual member forum attracted over 18,000 members live or watching on demand, to hear about the basics of pensions. We also host informative events for members throughout the year.
• Our Member Advisory Panel consists of a diverse range of members from different sectors. The panel provides direct feedback to our Mastertrust trustees on our members' concerns.
Client information:
• Our 24/7 interactive dashboard, My Scheme Intelligence (MySI), provides access to insightful information to keep scheme managers up to date with matters relating to their scheme. We were the first provider to offer real-time scheme data and service-level tracking.
Use of member-friendly technology:
• Our app, Coll8, allows scheme members to access their pension on the go and stay in control of their retirement savings.
• We're continually enhancing our secure pensions portal, Manage Your Account, which includes a virtual assistant for members to receive rapid and targeted online support, an interactive retirement planning tool, and which lays foundations for developments like the pension's dashboard.
Focusing on issues our clients and members care about:
• We teamed up with fintech platform Tumelo, to allow members to vote on the environmental, social and governance issues that matter to them. These insights can be factored into our votes on these issues at company annual general meetings.
Should a scheme decide to move to a master trust, what process might they have to follow to do this?
As the largest commercial master trust provider in the UK, we believe we have the scale to deliver dependable, value for money services for your members.
If you're considering moving your scheme into a master trust, you can either:
• Appoint an adviser to help you through the selection process and advise on the current master trust market
• Contact your usual Legal & General contact or complete the form on our dedicated scheme consolidation website lgim.com/scheme-consolidation
to discuss moving your scheme to our Legal & General WorkSave Mastertrust.
Our pension consolidation website has general information on the pension consolidation requirements, including access to our value for money guide on what to look for when assessing providers.
Bio
Rita Butler-Jones is co-head of DC at LGIM and is responsible for LGIM's intermediated and direct-to-client sales efforts across bundled and unbundled products. She joined LGIM in 2015 from Friends Life and has held roles at firms including Mercer and Threadneedle Asset Management during her career.
