Value for money for members

The Trustee carried out a value for members’ assessment, looking back over the Scheme year to 31 December 2020. The Trustee is required to assess the extent to which member borne charges and transaction costs for the Scheme Year represent good value for members. 

Overall, the Trustee believes that members of the Scheme are receiving good value for the charges and transaction costs that they incur as the assessment showed that members benefited from well-designed default investment strategies and range of investment options as well as very low charges, amongst other benefits as summarised below.

The Trustee reviews all member-borne charges (including transaction costs where available) annually, with the aim of ensuring that members are obtaining value for money given the circumstances of the Scheme. The most recent value for members’ review took place on 2 July 2021. The assessment was undertaken taking account of the Pensions Regulator’s Code of Practice No.13 (Governance and administration of occupational trust-based schemes providing money purchase benefits) and accompanying guidance.

There is no legal definition of ‘good value’ which means that determining this is subjective. The Trustee notes that value for money does not necessarily mean the lowest fee, and the overall quality of the benefit received by members was also considered in this assessment. The assessment was undertaken with assistance from the Trustee’s DC consultant and involved a wide assessment of value considering the key elements of the Scheme and agreeing relevant value ratings for each area, in addition to looking at the value attributable to member borne costs and charges.

Trustees assessment of value relating to member borne charges and transaction costs

The member borne charges are limited to additional fund expenses (not the annual fund charges) and transaction costs for the main DC funds and the assessment found this compares very favourably to other DC schemes.

The Trustee’s investment advisors have confirmed that the additional expenses paid by members for the main DC funds are competitive for the types of fund available to members. Members pay significantly less than members in other schemes as they only pay the additional expenses element for the main DC funds.

The Trustee also considered the wider benefits members receive from the Scheme, which include:

  • the oversight and governance of the Trustee, including ensuring the Scheme is compliant with relevant legislation, and holding regular meetings to monitor the Scheme and address any material issues that may impact members;
  • the design of the default arrangements and how this reflects the interests of the membership as a whole;
  • the range of investment options and strategies;
  • the quality of communications delivered to members;
  • the quality of support services such as the Scheme website where members can access fund information online; and
  • the efficiency of administration processes and the extent to which the administrator met or exceeded its service level standards. 

The following table sets out summary of how the Trustee has assessed value.

Area

Assessment

Commentary

Charges

Very Good

Most of the Scheme’s costs are covered by the sponsoring employer, with only transaction costs and additional expenses borne by the member. Charges paid by members are therefore extremely competitive when compared to typical fees paid by members in other large DC schemes.

Scheme Administration

Good

The agreed service levels for achieving a task are generally shorter than the standard levels expected, and these are achieved in the majority of cases for DC members.
The Trustee reviewed monthly performance reporting on key processes, transactions and complaints.  Any issues and anomalies identified were followed up with the administrator for explanation. The Trustee held weekly service meetings as well as monthly meetings with the administrator to review and assess service performance, discuss issues, and progress on project related activity. Any issues identified by the PSE as part of its oversight were raised with WTW TAS immediately and steps were taken to resolve the issue.

Scheme management and Governance

Very Good

The Trustee has a high level of knowledge and engagement in managing the Scheme, resulting in a comprehensive training programme, supported by a strong team in the PSE.

Communications

Very Good

A wide suite of communication tools and resources are offered to Scheme members which is continually reviewed. New communications and actions were implemented over the Scheme year, including (but not limited to) a new joiner nudge and interactive checklist and running an email address collection campaign.

At Retirement

Good

During the Scheme Year, the PSE/Trustee progressed with reviewing wider post-retirement support and is in the process of implementing this offering. They issued a "Guide to your retirement pack" following the move to online packs and updated and re-issued the over Target Retirement Age (“TRA”)  nudges encouraging members pre and past TRA to think about their target retirement date, and if this is aligned to their intentions

Default arrangement

Very Good

Different defaults are available to different cohorts of members, recognising their different requirements. The default investment strategies were reviewed as part of the Triennial Investment Strategy and Performance Review in June 2020. As a result of this review the Trustee concluded that the high-level strategy of the lifecycles remains appropriate for members.

Self-select Investment range

Very Good

The Scheme offers a good range of funds covering all the main asset classes with active and passive options and the option to invest in lifecycle strategies that target drawdown, annuity purchase or a cash lump sum (reflecting the three broad choices members have at retirement).

Scheme design

Very Good

Employer contributions are generous when compared to the market, with total contribution rates exceeding the industry benchmarks. The Trustee undertook quarterly monitoring of member contributions over the year to understand the impact of COVID on saving habits and member interaction with the Scheme. An announcement was published on the Scheme website for members to provide reassurance in the period of market uncertainty. A greater number of members changed their contribution rate during 2020 than in 2019 and, positively the vast majority of those changes were members increasing their contributions, to take greater advantage of the matching contributions available to them.

     

The above statement also refers to the current AVC arrangements. There are a small number of members invested in a relatively large number of legacy AVC arrangements and these investment options are no longer open to contributions.  These legacy AVCs only account for a small proportion (less than 0.1%) of the total DC assets within the Scheme. Therefore, the Trustee has taken a proportionate approach to reviewing them, compared to the other DC benefits within the Scheme.

The Trustee carries out an annual review of its legacy Additional Voluntary Contributions (AVC) arrangements with the last review undertaken during the Scheme Year being on 22 June 2020. This review highlighted no material concerns with the AVC arrangements and confirmed it would be in members’ best interests to remain with these providers rather than be transferred into an alternative arrangement as this would result in a loss of guarantees or high exit charges.

The Trustee continues to close empty legacy AVC policies and remove investment funds with zero members as and when these are identified. As members in these AVC schemes have fewer investment choices and pay higher fees in comparison to the main DC assets, the Trustee will continue to communicate with members to make them aware that they might benefit from moving their AVC assets to investment funds in the main DC investment platform with Fidelity. 

On 31 December 2019, following the transfer of Equitable Life’s business, members with Equitable Life With-profits investments were uplifted to compensate for loss of guarantees and transferred to a unit-linked Secure Cash Fund with Utmost Life and Pensions. The Trustee transferred these investments to the Lump Sum Strategy in July 2020 to allow members to benefit from reduced fees and increased investment choice.

Overall, the Trustee believes that members of the Scheme are receiving good value for the charges and transaction costs that they incur as the assessment showed that members benefited from well-designed default investment strategies and range of investment options as well as very low charges, amongst other benefits as summarised above.

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More information

Default investment strategy 

The Trustee has made available a range of investment funds for members. Each member is responsible for specifying one or more funds for the investment of their account, having regard to their attitude to the risks involved. If a member does not choose an investment option, their account will be invested into the default option applicable to them, which is managed as a “lifecycle” strategy (ie it automatically combines investments in proportions that vary according to the time to retirement age). The lifecycles are 100% invested in equities until twenty years from a member’s target retirement age from which point they transition gradually into less risky assets appropriate to the outcome targeted.

Member Charges 

The Trustee is required to set out the charges incurred by members over the period covered by this statement. As the sponsoring employer pays the Annual Management Charge (AMC), platform expenses and administration expenses, member charges are limited to the additional fund expenses incurred by the underlying managers in the day-to-day running of the funds.

Illustration of charges and disclosures costs 

The Sponsoring employer currently pays the AMC platform expenses and administration costs. Additional expenses (“AE”) are covered by members and are those costs incurred in the management of the underlying funds which are, by nature, flexible and therefore fall outside of the AMC. The Trustee has provided an illustration of the impact of the charges and costs on members pension pots for the default options as and four funds from the Freechoice range.