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Defined Contribution

U.K. small and medium DC plans don’t properly assess governance value, regulator finds

Small and medium-sized defined contribution plans in the U.K. are not assessing whether the plans offer good value in terms of governance to their participants, according to research by The Pensions Regulator.

The U.K. regulator's survey showed that only 1 in 10 small plans, and 1 in 3 medium-sized plans assess the plan's value in terms of fees for participants, ensuring participants have a good knowledge and understanding of the fees they pay.

The survey looked at micro plans (fewer than 12 participants), small plans (12-99), medium plans (100-999) and large plans (1,000 or more participants).

Although 86% of U.K. participants are enrolled into DC plans that are adequately assessing fee value for participants, less than half of plan trustees are actively researching how to evaluate participant fees, the survey found.

The worst-performing area across all plans was investment governance with, on average, less than a quarter of plan trustees meeting the regulator's expectations. Only 14% of small and 19% of micro plans were meeting expectations set by TPR, such as providing adequate or complete information on costs and how these costs translate into value for participants, according to the regulator.

TPR also found that U.K. multiemployer funds, known as master trusts, are most likely to have met expectations in all of the areas tested in the survey.

"Poor value for participants is a key risk which needs to be managed," said David Fairs, executive director of regulatory policy, analysis and advice at TPR, in a news release. "Any small plans unwilling or unable to assess value for participants should seriously consider if their participants would be better off being moved to a bigger plan which benefits from economies of scale. It is essential that participants get the benefits they deserve from their plan. Assessing value for participants enables trustees to identify and address poor-performing areas, in turn making a plan more likely to provide good outcomes for to (its) savers."

TPR surveyed 441 single- and 24 multiemployer DC plans between January and March of this year.