Chairman’s VFM statements ‘could lead to opt-outs’

Negative comments in chairmen’s reports on the value for money of pension schemes risk increasing member opt-outs, Barnett Waddingham has warned.

Speaking at an event in London this morning, Barnett Waddingham head of DC Mark Futcher warned that a too negative tone, particularly around charges could lead to disengagement by members, a consequence that was clearly not intended when of the new rules that require trustee boards, independent governance committees, governance advisory arrangements and master trusts to assess value for money for members were introduced.

Barnett Waddingham head of DC investment Alex Pocock said statements need to be phrased in a way that ensures they do not discourage membership of schemes.

Futcher said: “The message has to be that contribution levels are the biggest factor and that most of the money is not coming from the employee’s pocket, but from the taxman and the employer, who are turning £4 into £10.

“But that does not mean there is not more that can be done. Now we have the 0.75 per cent charge cap lots of schemes could just say they are complying with that and leave it at that. But there are bundled GPPs out there that are priced at 0.75 per cent on the basis that they offer various extras such as communications and tools. Schemes need to ask whether they are using all these extras and if not, why they should be paying that amount for their scheme.”

Pocock said: “If a scheme’s trustees do the value for money assessment and the conclusion is that it is not value for money then we will get people opting out. There needs to be that undertone to the chairman’s statement that the best thing is to remain in the scheme. It needs to say ‘you are not going to get any money elsewhere if you opt out.

“It seems strange to have the value for money requirement and the charge cap at the same time. You should not need the two. The charge cap tends to focus on the idea that high charges are bad. It is easy to bash fees – it is a number and it is easy for politicians to knock these things down.

Law Debenture independent trustee Michael Chatterton said: “Once you have assessed your investments what are you going to compare them to? You might compare them to Nest or the charge cap, or depending on how they are invested, against other passive charges, or what the highest charge shown in NAPF surveys, or maybe work with a consultant and benchmark the costs against other schemes.

“Value for money is not a point in time measurement, it is value over a reasonable time. Chairs’ statements have to be backward looking but it is also worth looking forward at what charges are coming down the line in future.