A VFM assessment could be seen simply as a tick-box compliance exercise. But if approached with the right spirit, it will provide you with a regular governance update on the suitability of your scheme's DC arrangements.

A VFM assessment could be seen simply as a tick-box compliance exercise. But if approached with the right spirit, it will provide you with a regular governance update on the suitability of your scheme's DC arrangements.

You must report on your conclusions through the annual governance (chair's) statement, in online disclosures and, shortly, via the annual scheme return.

What is our approach to VFM assessments?

We will provide you with both an absolute VFM assessment, considering the scheme on its own merits, and a relative VFM assessment, comparing the scheme against other options in the market.

Working in collaboration with you, we’ll present our findings via our digital VFM tool. This will enable you to quickly filter between those areas where VFM is being - and is not being – delivered. You’ll also see the areas in which the assessment has changed, compared to the previous year. In areas where VFM is not being delivered, we will suggest changes for you to consider.

In addition, you’ll be supported to help you prepare your chair’s statement and online disclosures, including the required illustrations of the compounding effect of costs and charges.

Are you affected by the changing VFM methodology?

The VFM methodology is changing for scheme years ending after 31 December 2021. This is to accelerate the consolidation of smaller DC arrangements into larger schemes. The Government’s aim is to improve member outcomes, derived from greater scale and more professional governance.

Your scheme will be impacted if it has total assets below £100 million and has been operating for at least three years.

Impacted schemes will be subject to a new assessment framework, based on three core areas:

  • a relative assessment of costs and charges against three comparator schemes
  • a relative assessment of net investment returns against three comparator schemes
  • an absolute assessment across seven prescribed areas of governance and administration

The comparator schemes may be trust-based schemes with assets of at least £100 million or contract-based schemes and there must be a clear rationale for the comparator schemes chosen. In addition, there must have been discussions with at least one of the comparator schemes over potential consolidation.

If your scheme is impacted and your assessment under the new approach concludes that your scheme does not deliver VFM, you will be required to look to consolidate members’ benefits into a larger trust-based scheme (normally a master trust) or contract-based scheme, or set out the immediate action you will take to improve VFM. The reporting requirements of the VFM assessment and resulting actions are being extended to include the annual scheme return.

How can we help you?

We can help you understand the changes and whether your scheme will be impacted. If you wish, we will support you with an assessment under the new approach ahead, of the regulatory timeline, to determine the likely outcome. This can then be used to consider improvements in advance, or consolidation options ahead of potential market capacity issues.

We strongly believe there remains a place for smaller well-governed trust-based DC schemes and we can support you with relevant changes to help you to achieve and maintain this. However, should you wish to consider consolidation options, we are well-placed to support you and have experience of scheme transitions.

If your scheme is open to future service contributions, an optimal solution for scheme transition may be better achieved with the trustee(s) and employer working together.

Please note, £100m of assets is the current cut-off for the new VFM methodology but this may just be a first phase. The Government is seeking views on opportunities and barriers for consolidation of larger schemes.

Contact us for all enquiries

For more information about the independent, expert services we provide in this area, speak to our team today.

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