DC Excellence: What's next for DC schemes?

Jo Tibbott: OK hi everyone and welcome to our first DC Excellence Webinar of the New Year. In what I think we will all agree has been a pretty momentous January so far, with this week actually not being any exception to that with Joe Biden's inauguration yesterday and also the Pensions Schemes Bill finishing its journey finally through Parliament so both of those I think you will agree are momentous in their own right. So just turning to this morning's webinar, I am delighted to introduce our three speakers. So firstly, we have Stephie Nicholls-Hinks from our Gowling WLG Pensions team.

Stephie is a senior associate in the team and works on a wide range of schemes for both trustees and employers but she is part of our DC Excellence team and works with me on that to ensure that we are at the forefront of everything we do in the DC world. Next, we have Louise Sivyer from the Pensions Regulator, so Lou is a policy principal in the Pension Regulator's Regulatory Policy Directorate.

She has been at the Regulator since 2007 and worked in both policy and operations teams across issues relating to both DB and DC. She leads the team that is responsible for developing policy relating to governance and admin of trust based pension schemes which includes the future of trusteeship, pensions dashboards which I am sure a lot of you are starting to think about and also the regulation of DC schemes and importantly value for money which is what she is going to be talking to you about today.

Finally last but by no means least Samantha Pitt from Law Debenture. So Samantha is a trustee director at Law Debenture working across around 11 schemes including DB, DC and hybrid arrangements with assets ranging from £30 million right up to over £6 billion. She chairs six of these schemes including four of which are DC schemes.

She is really focused on ESG integration into investments and on improving member engagement and communications through digital solutions which I think we all agree seems to really be the direction of travel certainly with DC members these days and then finally I am just going to talk to you briefly on investment pathways which are coming into force in February this year and what really that means for occupational pension schemes. As some of you know on the call as well as chairing the webinar I am going to be just talking to you about that and I am a partners in the Pensions team at Gowling WLG.

So firstly, I am going to just hand over to Stephie who is going to talk to us about DC consolidation. Thanks Stephie.

Stephanie Nicholls-Hinks: Thanks very much Jo. So yes as discussed I am going to just cover what the latest position is in terms of DC consolidation and my first slide is what is driving DC consolidation at the moment and why is this such a hot topic and in my view consolidation is being driven by two issues in particular.

The first of these is the issue of members having multiple small pots from multiple different employments which hinders their workplace saving growth opportunities and secondly the other issue is the increasing pressure on small schemes to consolidate if they are not showing value for money, but in the end as you can see from the slide, both of these two issues really come down to increased Government focus on DC schemes to show that they are providing value for money for members and good outcomes for members, and that is a topic in particular that Lou will be touching more on later in this webinar.

So I am going to speak about these issues in turn so first just turning to small pots and why is this an issue in the DC world? So there are a number of reasons for this. The nature of employment in the UK has changed quite dramatically over the past few decades and individuals are much more likely now to move jobs and have lots of shorter periods of service with lots of small pots in turn, and with the introduction of auto-enrolment in 2012 this means that these individuals will have multiple small DC deferred pots so their savings become quite fragmented because of this.

Then September 2020, the Department of Works and Pensions found that after looking at the books of five of the largest DC providers that almost three quarters of deferred pots in the sample were smaller than £1,000 while a quarter was smaller than £100 so these are really very small sums of workplace savings. Now this obviously leads to poorer outcomes for these members for several reasons and these can include firstly the value of their small deferred pots might be eroded where there is a combination of various charge structures which are applied to them by the DC providers.

Secondly, and quite understandably I am sure many of us face this issue members can just lose track of their workplace savings if they have had multiple employments, they have lost paperwork and as we all know pensions quite often is not at the forefront of people's mind and the sheer complexity of this all can act as a disincentive or member engagement and so they put off planning their saving in later life. There is also separately in a question as to whether the pension providers themselves will find managing large numbers of these small pots which is only going to grow unsustainable in the end.

So just turning to my next slide, what solutions have been proposed to this because obviously there is a growing issue here? The Department of Work and Pensions set up the small pots working group to look at this issue and they have identified a number of recommendations and actions for the Pensions Industry and Government to look at.

As a first step they suggested that the Industry should set up a group to investigate and to address the administrative challenges which would be necessary to underpin mass transfer and consolidation systems which would need to be delivered at scale within the auto-enrolment market. The Department of Work and Pensions has stopped short of recommending an exact model for future consolidation and they have instead said that any final decisions as to this should be informed and developed following the Industry's investigation of administration processes.

However the DWP did flag some areas which they said should be investigated further by the Industry. The first of these was opportunities for member initiated consolidation but they did flag that this would have to be with proportion member safeguards as we are all very aware of the growing trend of pension scams. The DWP has noted that pensions dashboards and other technology might help with this as it will allow members to view all pots with different providers in the same place. The DWP has gone onto say that member led consolidation alone is unlikely to change the trend of increasing small pots so they have said that the Pensions Industry and Government should prioritise action enabling automatic large scale low cost transfers on consolidation for the auto-enrolment market.

One of their further suggestions related to this was that where pension providers might hold multiple pots for the same member within charged capped funds the industry could look at ways to consolidate those pots so that they are less affected by all of the different charges. The DWP did name a few of these different consolidation system models which they have suggested the Industry look at such as automatic pot follows member which is as it sounds on the tin really and also the default consolidator as they call it and there are a couple of different models for that particular consolidation system but the basic concept is that everyone would have a default small pot consolidation scheme where all of their deferred pots could be transferred and consolidated into.

So that was everything that I was going to cover on small pots. I am going to turn to the second issue which has received increased Government focus recently and that is that of small schemes. On 11 September 2020, the DWP published its response to its February 2019 consultation called Investment Innovation and Future Consolidation.

The development of that is that trustees of smaller DC schemes that is DC or hybrid schemes with assets of less than £100 million and this had been operating for at least three years will from 5 October 2021 be required to assess key elements of the value achieved by their scheme which includes costs and charges, net investment returns and other elements of governance and administration and these trustees will be required to report on the outcome of that assessment in their chair statement and their scheme return. Where this assessment shows that members would achieve better value in a larger scheme trustees are expected to initiative wind-up and to consolidate.

However, trustees will not need to consolidate and can instead look to make improvements where they are realistically confident that the required improvements can be made and/or the wind-up and exit costs might exceed the cost of making those improvements and/or there are valuable guarantees that would be lost for members on consolidation.

Our trustees will be required to report their proposed approach to the Pensions Regulator and should the trustees then fail in their attempts to improve the DC scheme and value for members, they will then be expected to wind-up and consolidate the members into a scheme that offers better value.

Interestingly it was originally proposed that the requirements to assess and consolidate would apply to schemes with less than £10 million in money purchase assets but that threshold has now been increased significantly to £100 million of assets and this just really highlights that DC consolidation is clearly viewed by the Government as being key to promoting good governance and value for members.

That is everything that I was going to cover in my slides unless Jo there was anything you wanted to raise.

Jo:  That's great. Thanks Stephie. I should just say the slides are moving on a bit slowly today. I think my wifi is overloaded with the children home schooling so please do bear with me. There is one question Stephie that has come up. There are a couple of questions so one of which do we think the consolidation will extend to contract based or are the DWP at the moment really focusing on occupational pension schemes. I do not know if the consultation was clear on that.

Stephanie:Yes I am not sure if the consultation was clear on that but I think it is clear as to where the trend is going and the real focus is on making sure that members do have this value for money and that there are not sort of lots of small pots hanging around for members which are not getting them any investment return.

Jo: Yes I think it is quite interesting I think because quite often I think when employees leave an employer if they have got a contract based arrangement they really do kind of linger somewhere and it is quite easy for members to forget about those with it sort of being an individual arrangement almost with the provider so I think it is interesting there that whether they will be picked up. I think it is something that needs to be looked at.

Absolutely and there are a couple of more questions as well but perhaps if we pick those up at the end and we will move on to Lou now. Just bear with me with this slide.

Louise: So yes obviously value for money is a hugely important topic to the regulator as we have been talking for some time about the importance of this and now the Government are making many more moves towards pressing this issue and trying to make sure that we have fewer schemes in the market that are not providing value for money. Value for money is in fact one of TPR's five strategic priorities that we set out in our corporate strategy that we published last year.

And really the crux of it is that pensions savers, whatever vehicle they are saving into actually are entitled to expect good value for money, particularly in DC schemes where the bulk of the costs are often borne by the savers themselves and obviously all of the risk is borne by the savers in a DC scheme and this has been kind of something that been growing in focus and also in scope I suppose for a number of years now obviously starting with the initial DWP regulations back in 2015 which introduced the requirement for a value for money assessment and reporting in the chair's statements so it has been an evolution over a number of years and I think now the time has kind of come when it is now about taking action, it is about OK what does value for money look like, we need to continue to clarify that but it is now about really kind of compelling schemes to take action where they are not meeting those value for money standards.

So what does value for money look like though? So my snazzy diagram here clearly illustrates that there are multiple pillars to the value for money equation and the overall delivery of value for money and you will notice that I am using the phrase value for money, technically in the regulations the term is value for members but for trust based schemes because they are talking about cost borne by members but actually in practice we do not see any practical difference between the key terms value for members or value for money.

We are essentially talking about what is the value that savers get or what they pay for basically. So the main pillars of delivering value for money really are that savers money needs to be suitably invested, there needs to be good quality, efficient services which includes the administration and also that all of this is provided for reasonable and competitive costs and charges.

And really importantly for trust based schemes in particular, is clearly we have trustees. And the role that those trustees play is a really key driver in the delivery of value for money.

Standards of governance and the quality of trustee decision-making is what drives the outcomes in all of these other areas, so for us that is really important components. That is why we have been doing a lot of work over the last few years, looking at the future of trusteeship about how trustee boards are composed, levels of knowledge and understanding and how the schemes are being run to make sure they are delivering that value.

I think it is important that it is not just about the knowledge that trustees have, it is about how trustee boards operate. As a whole, and that includes the diversity of trustee boards. Both in terms of diversity of skills and experience but also making sure that members are properly represented.

That people saving into DC schemes gets the introduction of automatic enrolment are hugely diverse. Both in age range, in background and so we need to make sure they are properly represented.

Actually next week we are going to be holding the first meeting of our industry working group on diversity and inclusion on trustee boards to really try and get to the bottom of this. What does it mean?  What are the key things that trustees need to have in place on their boards to make sure that there is enough diversity and inclusion to be sure that the decision-making in those schemes is really of top quality.

And also the scrutiny of decision-making is another one of TPR's strategic priorities. It is something that we do put right up there in terms of importance.

So moving onto my next slide. As Stephie has outlined and as I have touched on, government and regulators we are all working to try and clarify the measurements of value for money. We know that first of its introduction it is quite a sort of nebulous concept. It is like, what does that mean if it is going to be different for each individual saver.

There is work going on to try and make sure that there is some consistency around that and that there is clear definition and a clear view of what value for money means right across the industry, across both trust based and contract based schemes.

I think as Stephie has outlined, the DWP requirements that come into force in October this year, is a really good step forward in terms of wanting to get schemes to take concrete steps to achieve value for money if they are in a position where they are not doing that at the moment.

Whilst trustees will be able to put plans in place to improve their value for money, I think there is a clear expectation – I think DWP said as much in their response that it is unlikely that the majority of schemes will be able to demonstrate that value for money relative to larger schemes.

I think it is certainly government's expectation that most schemes will move to consolidate. One of the biggest barriers for that is around being able to access competitive charges and economies of scale that larger schemes can benefit from.

So that, in my view is what will be the biggest barrier to those smaller schemes being able to say, actually we are going to be able to get to a position where we can acheive relative value for money that's on a par.

It will be interesting to see how that goes and how trustees start doing that. One thing that has been really interesting in looking at smaller schemes in the research that we have done at TPR. Where we have spoken to trustees about why have they not considered winding-up and conversely where we had seen schemes that have started the wind-up process, talking to them about what were the drivers for that and one thing that is consistently come up that is either something that has historically stopped winding-up or has made the decision much harder, is the value that a lot of trustees place on having a more personalised service in a smaller scheme.

We hear a lot of feedback around, well we know the members individually, we know what they want, we can do the best thing for them. And that is very laudable and I do not think anyone would argue that there is some value in that. I think the question that we really need to challenge is, does that outweigh the value that transferring into a larger scheme could afford the member in terms of the actual financial impact and the actual retirement outcomes that they are going to get.

It is something that we do hear come up a lot but it is something we think trustees really need to challenge themselves about and think actually is that really so valuable that we do not move our members into something where they could potentially get better financial outcomes.

I am going to talk a bit more about this last point in a moment but DWP are looking at the kind of schemes with less than £100 million pounds assets under management?  And TPR and FCA we are working together on producing an industry discussion paper which looks at more broadly establishing some metrics and benchmarking for the components of value for money across both trust based and contract based.

I will talk about that in a little bit more detail in just a moment. For now if we can move onto my next slide. I feel like Chris Witty when I say that. I am not as clever as him though!

What my next slide shows is actually really that the evidence for this move towards consolidating smaller DC schemes has been growing over a number of years and has been really consistent over a number of years.

We carry out every year at TPR a annual DC survey and what that survey is looking for, is looking to assess the extents which different sized schemes, different sized DC schemes perform against five key governance requirements.

These key governance requirements are linked to the expectations that we set out in our DC code which are linked to legislative requirements.

We establish this by, we ask several questions of trustees in relation to each of the key governance requirements in order to establish a view of the scheme's performance. As you can see, this slide is showing the latest survey results. This is from our 2019 survey.

The picture that you are seeing here is one that we have seen consistently across the years and that is that across the board, the smaller DC schemes fall behind their larger counterparts in terms of meeting the governance standards that are required.

I think if this does not translate directly to schemes with more or less than £100 million pounds assets under management I think the way that we divide this, we look at the scheme membership size? 

So that does not necessarily translate directly into the assets under management but this does clearly show that smaller schemes do not perform as well as their larger counterparts.

That is not to say that all small DC schemes are poorly run and that all of them are poor value for money. We did do a thematic review a couple of years ago looking at value for money assessments on small schemes in particular and we did find some examples of small schemes were there was very robust governance, good charging – or in fact very valuable guarantees that were in place. Evidence that the scheme was being very well run, that the trustees had the knowledge and understanding and that they had clear plans for how they were running their scheme and what they saw as its future.

But that would include in some cases, some trustees who were doing their value for money assessment and recognising that actually there is probably going to come a point where we are not going to be able to compete and that there will be a point where it will be better to transfer our members into another scheme. But the implication is though that not all small DC schemes are very poorly run. That is not the case at all, but it is the trend when we compare against larger schemes.

And of course, some DC schemes do still have the majority of the costs picked up by the employer rather than the saver so that is something that does need to be taken into consideration but it does need to be stacked up against what outcomes are savers getting from that scheme, even if they are paying minimal costs.

I just wanted to point out that we did not run our DC survey in 2020 because of the pandemic. We chose to not to place a digital burden on schemes to answer questions from our researchers. We will be picking it up again this year.

Jo: Sorry Lou I was just going to ask quickly we have had a comment really from the audience in relation to some of the statistics on those slides, particularly in relation to master trust. A comment that it is quite worrying not to see a hundred percent for master trusts, checking the suitability of default funds?

I just wondered if you had anything to add really to that or comment on that, particularly given now that the authorisation and supervisory ratings regime is really starting to get embedded. It was just quite interesting and agree worrying to see that.

Yes, so the timing of this survey, so this survey was run before master trust authorisation had/was fully – when the schemes had all gone through master trust authorisation. And yes, there is going to be cases where in some areas master trust falling down obviously for master trust now, we do not rely on survey results now, we have a much more robust way of assessing the performance of master trusts and some of the master trusts that were included in this survey would not have become authorised, so they would since have withdrawn from the market.

Yes, I agree and now we are able to scrutinise much more closely the performance of master trust now that the authorisation regime is fully up and running.

I think there are some – so if I take the value for members assessment for example, that key governance requirement?  I think the fact that the schemes across the board still struggle to some degree with this is part of the reason why we are trying to do more work to put more clarification and consistency around it.

And, for example, the design of the default investment strategy, we know that a big barrier to schemes hitting that key governance requirement has in the past been the element of seeking member views. And having mechanisms in place to field member views and to build that into the design of the default strategy.

Obviously there are stronger legislative requirements coming in around that now in terms of the climate change regulations and things like that, so that requirement is becoming a bit stronger but we know that that has historically been a practical barrier but that master trusts are now getting on top of that a bit more.

Hopefully, and like I say it might be that the next time we do this survey, master trusts are excluded because we have another way of monitoring and assessing their performance, but yes we obviously want to see the schemes that do not consolidate. We want to continue to see improvements in their governance performance as we go on.

I was just going to not linger very long on this slide at all really, this is really just to illustrate that the consolidation of DC schemes has been a trend over a number of years now. Particularly since the introduction of automatic enrolment.

It has declined by 62%25 since 2010 it is already a trend and I think it is just one that we expect the new regulations to accelerate and we would want to see it accelerated as well so that we are left with fewer but larger better run schemes in the future.

Just onto my last slide then, so this is just to talk a bit more about the work that we are doing with the FCA.

Stephie has talked about the DWP regulations and the work that we are doing with the FCA is intending to compliment that. The DWP requirements?  What they kind of set out is sort of a binary value for money test if you like?

You know, you go through the assessments and at the end of it, you answer either 'yes I do provide value for money' or 'no I don't' and here is what I am going to do about it. As we see more of consolidation and we are left with fewer but larger schemes then actually the value that they provide relative to each other is going to become more important. Because there will not be that expectation that they will just consolidate. It will not be that easy for a scheme to do it unless they are in really dire circumstances.

Also, the large schemes, they will have the resources and the ability to make proper steps to get their value for money up to par as well. So we are looking at how we can put in place consistent ways of measuring and benchmarking value for money around costs and charges, around investment performance and also across the service and governance elements.

I think there is some tricky issues to work through I think because the universes that TPR regulates and FCA regulates they are not the same. We need to consider the role of trustees and the governance element and how we reconcile that across both universes but what we are really aiming to do is try and get in place industry wide way of measuring and benchmarking value for money.

That is visible, that is transparent. That is the main thrust of that work. And one thing that I did just want to pick up on briefly is, that obviously consistent disclosure of costs is really important to make sure that these comparisons can be done properly. We saw last week that the DWP in their charges review paper they have decided not to mandate the use of the CTI cost template for now. But they are minded to legislate to make that mandatory in the future if there is not sufficient take up because actually trustees having the access to a clear and consistent way of charges being reported to them. So that that information can then be used in value for money assessments and even member disclosure if we get more requirements around disclosure of costs and charges to members where… you know… that is a really important element that we need to factor in as well.

I am going to stop talking there and sorry about the technical hiccups there but hopefully people managed to get most of that and yes if there is any further questions I can take them.

Jo: Yes, just a quick one now Lou because I am conscious of time and we have still got Samantha to go, when is the TPR SCA discussion expected?  Is there a timescale on that at all please?

Louise: There is not an exact timescale, we are aiming for this spring though. It has been pushed back a few times due to COVID and us needing to prioritise other things in the more immediate term. But we are hoping for it to be in the next two or three months.

Jo: Okay, great, thank you. Okay, that was a really interesting session, thanks very much and now over to Samantha who is going to share some of her experiences as a DC Trustee with us. Thanks Samantha.

Samantha Pitt: Thanks Jo. As Jo said I am going to sort of give a DC Trustee's view point and doing what is right for the member. I am going to try not to repeat anything that Stephanie or Lou have already mentioned.

Obviously Lou talked about the five pillars of value for money or value for members, focussing a lot on competitive charges and costs, having a well governed DC scheme and a bit on administration. Administration, I think, is key because that is a member's first‑hand experience and so, as trustees, you should be monitoring the performance of your administrator on a regular basis.

But I wanted to talk a bit more on investments and also then member comms and engagement and also picking up on some of the regulatory legislative requirements that have not been mentioned.

So, just focussing on investments and Lou mentioned about a suitable design of the default fund or lifestyle you know… this is what the majority of members do invest in. They do invest in the default… on average, roughly about 90%25 or more. So it has to be fit for purpose and ensure that members are going to have sufficient income in retirement. I think most schemes now offer three different lifestyle strategies being targeting cash, annuity or drawdown at retirement. I know TPR does expect DC schemes to review their investment strategy fully every three years but it is probably good practice to do a light touch review annually.

You do not want a light touch review annually. You do not want to be undertaking too many investments transitions because obviously it costs, you have got member black-out periods. But you can… you know if you have got white label funds make changes to the underlying funds without incurring those member black-out periods.

I think… if I pick up as well on sort of the glide path… you know this talks about when you start de‑risking, moving across from the growth phase to the pre‑retirement… moving out of… high return seeking assets to more capital preservation assets and obviously that will depend on what lifestyle and strategy you are adopting. And as part of that you want to set performance targets for each phase of that glide path. Whether you are looking at cash plus or inflation plus and obviously measuring that over time and you would expect those performance targets to reduce over time as you move through that life cycle.

And also look at the asset allocation… I mean… I think it… and that is quite interesting if you look at some of the master trust reports. Looking at how diverse that asset allocation is or is not… and obviously you can look at equity. Is that global?  UK?  Debt? Corporate Debt? merging market, high yield?  Looking at infrastructure, property and obviously there has been quite a lot of issues particularly over 2020 with having property funds in DC schemes given the gating issue.

So, you might want to look at more sort of a real estate investment trust, more of a listed property assets and then private assets and obviously there has been a lot of debate about alternatives to liquids and private assets in DC schemes. Given the requirement for DC to have daily liquidity and that liquidity. But there are funds now being structured that do access those alternative or private assets that are allowing that liquidity.

And then, my big focus that I am personally passionate about is ESG and climate change and it appears that lots of people or lots of schemes use 2020 as an excuse, not to sort of really integrate ESG and climate change into their DC investment strategy. And obviously there is a lot of legislative repertory requirements now that are going to force trustees to do something if they have not already done it. And, I think there is enough member surveys out there as well now that have proved that if a member knows their money is going be invested responsibly they are more likely to put more money into their DC pot.

There has been a debate about will you be giving up financial returns by going into an ESG or climate change fund. But, again, I think these are longer term investments and I think over time that is probably not the case. I was in one trustee meeting and one trustee said "well I don't believe in ESG". Well, it is not about a trustee view point here, it is about a member view point.

But I think the key thing is, it is very easy to start looking at moving your equity funds in your default into an ESG or climate change fund and I think the availability of funds is growing now. There are a lot more funds out there but it is choosing the right fund, not each investment manager has the same approach to ESG methodology. So, I think as trustees, when you are choosing those ESG/climate change funds, you need to understand the ESG methodology.

You need to be able to explain that fund to your members and be able to explain why you have chosen that fund. And also understanding the investment manager's general stewardship and engagement policy. Many of them adopt the same approach whether it is equity or debt. And then looking at moving your other asset classes into making them as ESG or climate change friendly as possible.

I do hope in the future and I think there will become a time when we do not separate out ESG and non‑ESG funds because all funds out there will be ESG and, again, there is enough pressure groups out there as well. You know… as well as getting member views on this. Places like Share Action, Making My Money Matter and so on and I think this is in my eyes is a top topic for 2021, if you have not already looked at ESG as part of your investments.

And the final point is on your freestyle or self‑select fund range. Making sure that you have got a good range out there for your engaged members so that they can invest in… and it could be that you may have specific climate change or ESG funds for members to look at, impact investment or also some other ethical funds. A lot of schemes, at the moment, have some Islamic or Shariah fund out there.

And then if I just move to my next slide, member engagement and communications… I do hope that one day everything is digitalised and we get rid of paper. If we are moving towards an ESG friendly world, then let us get rid of the paper. Most members, and it is irrespective of their generation, are used to looking at things on line, particularly over the last year… whether they are doing their shopping, their banking on line. They should be able to look at their pensions on line.

So we need to have fit for purpose websites with clear language for members so they can clearly understand and can easily navigate and also a lot of schemes out there are launching apps. You know though maybe… some of them might be quite basic, so a member can see exactly how much money they are putting into their pension scheme each month and how much they may be expected to have in retirement. You know at their target retirement age, obviously with lots of caveats there.

But some of them are obviously a bit more sophisticated, where a member can also import and in tune with the website, what savings they have got elsewhere so they can get an overall perspective of how much money they may have in retirement. And, be able to access on line… increasing their contributions or making investment switches. And, it could well be that you can launch simple videos out there just to sort of encourage members to put more into their DC pot. And this way a lot of schemes will look at member outcomes, using different personas like Sally who is aged 25, earning X, contributing Y. Or Jane who is aged 55 or Mary who is aged 65. Being able to try to encourage these members to put a bit more in so they have got sufficient money in their retirement.

And this is where you can link in things like PLSA retirement living standards to give members an idea of what quality of retirement they may have, in terms of additional holidays they can take, or more meals out. I think as we eventually get the pensions dashboard that will help members as well, if they understand where all of their money is.

And again, as I said, I think you can have different videos here and your benefit statements. We have had the DWP consultation talking about simpler annual benefit statements, which obviously has got to be an issue, not just for auto-enrolment but more generally across DC schemes. Again, can you personalise those?

I believe as much member comms should be personalised as possible. Lou mentioned the point earlier about small schemes feel they can personalise it. But I think that is equally true for some of the larger schemes out there as well, particularly those large company trust based schemes. Many of those do not want to move to a master trust and do want to have that personal engagement with their members. Again, could you digitalise the annual benefit statement… you know send it on line?

And at retirement support, this is where I really do feel that this area needs a lot more scope. This is where sort of trustees and pension schemes have been lacking. A lot of members really do not understand what a pension scheme is you know… what to do with their DC pot. And, this is where we need to give them a bit more support. Obviously we need to be careful that it is not advice, but a bit more guidance and it could well be that if that member is looking for annuity at retirement then maybe the scheme appoints an advisor that they can go to, to get support and guidance and a system in purchase and annuity that is right for them.

If it is drawdown, particularly with a lot of company trust based schemes, if that member selected a default strategy targeting drawdown, then gets to the retirement and then the member has to take their money out. Again, look to maybe appoint a drawdown provider as part of a master trust so when that member gets to retirement you can facilitate access to a drawdown provider.

And if I move on to my final slide. As I said I was going to try and pick up a lot of the regulatory and legislative requirements facing DC schemes. Some of this is also DB but you know there is a lot going out there. We have our sip updates, obviously everybody had to update their sip in October 2020 and October 2021 to meet the regulatory requirements. Obviously it is good practice to review your sip annually and update it, particularly if there has been investment changes.

It was touched on… the chair statement was touched on earlier and obviously undertaking that value for members' assessment in terms of governance investment… you know processing of core financial transactions/admin. Looking at charges, transaction costs and obviously needing to show the impact on members over time and you know talking about that trustee knowledge and experience that Lou mentioned.

But then who actually undertakes the values for members' assessment because if it the trustees themselves, you know… you are marking your own homework a bit. Should you have a third party assisting you with that value for members' assessment?  And, then looking at implementation statements, for a lot of schemes, this is going to be new this year because it only came into force from October 2021 and obviously needed to be included in our year accounts from then.

So I think probably at the moment is the first time a lot of schemes are looking at implementation statements. Have you followed your sip?  Have you reviewed it?  Have you made any changes?  You know… you may want to give your sip to your investment managers and get them to confirm that have complied with it. And voting date is going to be a key thing, we have had the PLSA template but I am sure that the first round of implementation statements, there is going to be a lot of dates missing and it is not going to be in a consistent format.

And then we have got the TCFD and the climate change risk reporting that is going to come into force, climate change risk reporting from this October will likely apply to large schemes over £5 billion and the master trust and a lot schemes have already declared that they are going to be net carbon, made net carbon zero pledges.

Again, how are you going to analyse your climate change risk?  During that scenario analysis… I would recommend that those schemes and master trust should probably be putting action plans in place now.

Now, all of those documents are going to be in the public domain so you may also want to think, particularly in the first three, may be having a bit of a member friendly version or a guide because members are not really going to understand a lot of that.

And then costs and charges, I am not really going to mention much on this because Lou has already mentioned it in terms of the recent consultation and the cost transparency initiative template. So that was all I was going to sort of… a bit of a whistle stop tour… but just a few highlights from a DC Trustee perspective.

Jo: That's great, thanks very much Samantha and I think all of our speakers today have provoked a lot of questions. We are not going to have time to get through all of them but what I can say is that we will try and answer them after the event and let you have answers to your questions. But just a couple for you, Samantha, if that is okay?  And, obviously Stefanie and Lou feel free to chip in.

But one of them, Samantha, based on everything that you said when you are looking at lifestyle funds and I appreciate this does vary from scheme to scheme depending on your membership. But in your experience, what is tending to be the most appropriate lifestyle sort of default fund for members today?

Samantha: I think that is quite difficult because a lot… I mean I am just talking from my own personal experience on some of the company trust based schemes that I am involved in or I am involved with an authorised master trust is sort of establishing a lifestyle that meets drawdown.

It probably has not got enough history yet in terms of member experience so a lot of gathering that member experience in terms of… but a lot of schemes are set… still got annuities as the main default but often the others… so I think it does vary.

Jo: Okay, thank you and then one more quite interesting question which comes up quite a lot. We get asked the question quite a lot, but it will be interesting to hear your take from a trustee perspective, how you deal with this kind of point.

So, obviously trustees' legal and fiduciary duties are to act in the members' best financial interests so just because a lot of members want to invest in ESG funds, say for example, that is obviously not the sole factor. But how can trustees be sure that in making investments that ESG friendly, so to speak, that they are acting in the best financial interest of members. I mean I have my own views on that, but I would be really interested to hear yours, Samantha.

Samantha: Well, I think as I mentioned earlier, longer term… and I think the challenge out there at the moment for trustees is choosing the right fund, as I mentioned. And a lot of these sort of ESG type funds are new. So, how can you assess their performance?  You are kind of a bit reliant on sort of the investment manager undertaking some sort of back testing analysis to give you an indication of what that performance of that fund may have been over the last sort of five year period but recognising it is longer term. So it is a difficult question. I do not know what your views are on it, Jo?

Jo: Yes, I think what I have certainly seen in trustee meetings that I have been to, particularly I think with schemes… bigger schemes that do have the resources to look at this in quite a lot of detail. I think the data is slowly coming out now which enables trustees to properly assess and see the value that members can get from investing in those types of funds.

So, I think as this becomes more to the fore, the regulatory duties etc. it will be more difficult to say that "actually you can't with your legal duties" if you invest in ESG. A bit like your point you will stop having the discussion on ESG/non‑ESG because the financial benefits of investing in ESG will just happen, I think.

So, I am just going to quickly now, if I can get the slides to work, the bane of my life, there we go, just touch on, very quickly, investment pathways. And this is new FCA requirements that are coming in on 1 February this year, which are effectively requiring all non‑advised customers going into drawdown on retirement to be provided with investment pathways to help them to make the right decisions.

And one of the things that we have noticed recently, is that actually a lot of the master trust, the authorised master trusts that are out there are already looking at implementing investment pathways for their members because they are arrangements which will offer income drawdown on retirement. So one of the sort of things we have been thinking about is actually what might this mean for occupational pension schemes going forwards, and actually, in our experience, I do not know the experience of the participants on the call, actually a lot of schemes still do not offer income drawdown within the trust based arrangement, but actually as Samantha suggested, perhaps they will have some kind of arrangement with the master trust where members can go into that arrangement for drawdown purposes on retirement.

But one of the questions that we have been asked is well actually, if the provider is asking the master trust to implement investment pathways when actually this is not a regulatory requirement for occupational pension schemes. What kind of things do we have to take into account. And actually, I think the direction of travel seems to be from both the DWP and a sort of commentary that we have seen from the Pensions Regulator. That actually an investment pathway type approach is something which occupational pensions schemes could be required to provide because you are offering income drawdown within your scheme then going back to discharging trustees' fiduciary duties it is only appropriate that you sort of monitoring that and making sure that members are being provided with the right information on retirement and when they are drawing down from your scheme.

So I think where we get to is if master trusts are being asked to do that they need to ensure that they have appropriate investment advice, but also appropriate monitoring in place and making sure that they are communicating very clearly with members and members understand what their options are on retirement. But I do think that providing members with more information about the dicumulation phase provided it is clear and easy to understand has got to be a good thing.

So that is all I was going to say on that, but we have got some questions, so if the panel are happy for me to, I am going to throw a few questions at you all in the remaining time we have. We have about four minutes I think.

So the first question, Stephie, goes back to your presentation. When do schemes that the new value for money assessments are going apply to, when do they actually have to prepare their first value money assessment?

Stephie: It will need to included in the chair's statement in the first new year after the 5 October this year.

Jo: OK, brilliant. So another thing for schemes to make sure they have got in their business plan for this year.

And Lou, just a couple of questions on barriers to consolidation and I am just wondering if you have got any views on them. I appreciate that some of them have definitely got a legal and perhaps actuarial angel to them, but just interested to have your thoughts.

So a lot of DC schemes, or certainly some that we come across will have quite unusual underpins or links to with profits, for example, which can sometimes prove to be a barrier to consolidation because they can be quite expensive to get rid of. Similarly some scheme rules will contain quite restrictive provisions in terms of how you can wind up and when you can do it.

Do you have any views in terms of how trustees might be able to overcome, will the regulatory regime help based on what you are seeing, will there be any easements at all, or will it be sort of up to schemes to deal with those kind of knotty issues themselves?

Lou: Yeah, I think the one kind of big knotty issue that has historically held a lot of schemes back is this decision about what is in the members' best interest. So I think in that sense that the new regulations will help make that part of the decision easier, but some of the those really kind of tricky technical issues, they are not straight forward. The new DWP regulations, they do not override anything that is in the scheme rules for a start. So those things would need to be worked through with, and if the trustees wanted to rectify things and get rid of those barriers, that would involve conversations with their legal advisors and looking at the scheme rules.

Where there are things like with profits and kind of guaranteed annuity rates in place. The regulations do kind of recognise that those things are there. The with profits one is an interesting one, because it is one of those things that it is kind of viewed as possibly a guarantee but actually there is a question around as to how valuable are those guarantees. I think it is value for looking at that question of assessing it as part of the value and then coming to the conclusion as to whether the scheme is offering value for money for not. Then the next step is OK so how expensive, how difficult is it going to be to make that transition and that is where there can be a different decision made if the cost of getting through all of those knotty issues is going to seriously outweigh the benefits.

But you are right, there are definitely some questions for legal advisors in there.

Jo: Yes definitely and we have seen some of those being done in practice. Sometimes it is a case particularly with underpins where you have to go to the sponsor and say you know if you want to consolidate this DC arrangement there is going to be a cost to make sure members are no worse off if the underpin is crystallised. So we have seen it happen in practice, but it is tricky.

So I think we are at 12 o'clock now, so as I said we will follow up with responses to any questions that we have not been able to answer in the time available but I just wanted to say thank you very much to all of our speakers today and also all of you for attending. There will be a recording of the webinar together with the slides available in due course and the only favour I have got to ask, if you do not mind, if you have time, is just to complete the feedback form that will appear on your screens shortly.

And that is it from my perspective, so thanks very much and hope to see you all soon, virtually if not in person. Thanks very much, bye.