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Value for money framework and DWP’s master trust review

Published: 22 November 2023.

With the vast majority of pensions savers now saving for their retirement through defined contribution schemes, we are committed to helping to ensure that the system delivers the best possible outcome for them. All savers deserve value for their money and our focus is on ensuring that the system delivers the best possible outcomes for them. By this, we mean good value, not just low cost.

We therefore welcome the Department for Work and Pensions master trust review, published today, and the Financial Conduct Authority announcement today that it will consult next spring on draft rules on value for money for contract-based schemes.

These developments support our vision of a pensions market with fewer larger well-run schemes that facilitate investment in a diverse range of assets, and deliver better value and outcomes for savers.

We will continue to work with the industry to protect savers’ money, enhance the pensions system and support innovation in the interests of savers.

DWP’s master trust review provides details of the steps we will be taking towards a more influential and interventionist approach in relation to master trusts. We have committed to enhancing the supervision of investment governance, challenging master trusts on investment decisions, and will focus on the value that members of master trusts are receiving, ahead of a legislative framework.

We are already engaging with schemes with assets of less than £100 million that are non-compliant with the value for members assessment requirements that came into force in 2021, testing the limits of our powers. Whilst some schemes have already decided to wind up as a result of our work, we will publish details of enforcement action taken, including penalties issued, when relevant legal process has concluded.

Our objective, shared with DWP and the FCA, is to develop a holistic framework that can be applied consistently across the entire defined contributions market, across trust and contract-based schemes. That is why we are continuing to work with the FCA to help them develop their rules in anticipation of legislation for trust-based schemes. We will continue to jointly engage the market and devise joint policy solutions. That means trust-based schemes should engage with the FCA consultation so that there are no barriers to implementing the value for money framework in the trust-based environment.