As of April 2015, the statutory scheme governance requirements mean trustees are now required to assess the value for money of their scheme within the governance reporting in the Annual Chairman’s Statement. However, with no common definition of what constitutes value for money this leaves trustees to determine their own criteria.
Buck Consultants’ new Value for Money (VFM) rating system is a structured and full scale annual analysis that evaluates a range of factors that are applicable to a trust-based pension scheme, providing each scheme, or scheme section with a total score out of 100.
Each contributory factor is weighted by importance and added to the overall total score, with the trustees receiving a dashboard breaking down the scheme’s strengths and weaknesses.
A company’s VFM rating incorporates analysis of:
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Benefits - covering contribution levels, administration services, communications, member support, including access to the new freedoms
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Investment - including monitoring, reporting, and one, three and five year performance levels
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Charges – the level of costs and charges that are built into the scheme
Sue Curley, principal, Buck Consultants at Xerox, says,
‘DC schemes need to undertake annual VFM assessments in line with the new statutory minimum governance standards but with the new standards leaving ‘value for money’ up to interpretation, trustees have been left unclear on how they should be reporting on their scheme. The VFM score we have developed provides trustees with a clear and trackable measurement of how their scheme is performing, which can be easily understood, and regularly evaluated. It is essential that trustees do not leave it too late to look at this part of their governance requirements, as value for money can be difficult and time-consuming to assess without a structured approach.
‘The analysis we perform takes into account numerous aspects of a scheme’s activities – everything from whether it provides a discrete administration team, through to the actual investment performance of the funds – allowing trustees to be confident that they are assessing their scheme on a consistent basis. We are then able to build up a universe of information to see how schemes compare to each other.
She adds: ‘We would advise all trustees to take a thorough approach to tracking whether the pension scheme arrangement they are responsible for is providing value for money.’
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