How to prepare for AVC consolidation

Why AVC consolidation matters for trustees and members

Many trustees assume they have full oversight of their AVC arrangements only to discover hidden investments or missing records when preparing for a buy-out. This makes an early and structured approach to AVC consolidation essential.

Understanding legacy AVC complexities

The first step is understanding the scheme’s AVC. Some AVCs are straightforward, with unit-linked or cash-based structures. Others, particularly legacy AVCs, come with complications such as accumulation units with exit penalties, with-profits funds, contractual guarantees, underpins, or investments that have just become difficult to trace due to mergers and acquisitions (M&A) or provider exits.

AVC data and records can then be a challenge. In some cases we have noted AVCs that have been transferred between providers due to corporate mergers, with records lost in the process, and administrators holding AVC details where the AVC provider cannot locate the investment.

Governance, compliance and creating member-focused solutions

As trustees you must also consider the governance framework around AVCs. Some benefits are tied to the investment policy, while others are embedded in the scheme’s Trust Deed and Rules. Understanding these nuances is critical to ensuring a smooth transfer. Particularly for with-profits investments, trustees may need to achieve actuarial equivalence, demonstrating that members are no worse off following the transfer.

With continuing focus on Value for Money (VfM), regulatory compliance is another key consideration. You need to be confident that any transition aligns with
Effective System of Governance (ESoG) requirements and meets best practice standards for member outcomes. This includes ensuring investment choices remain appropriate and administration is seamless.

A successful AVC consolidation isn’t just about finding a new provider, it’s about creating a structure that works better for your members and trustees alike. With expert support, the process can be efficient and straightforward, ensuring that legacy AVC issues; including those arising from M&A complexities; don’t continue to create governance headaches in the years ahead.

Here are five steps to help you prepare

1. Map your AVCs
   Audit all AVC providers, fund types, guarantees and nuances. Understand which are a benefit of the Scheme and which are a benefit of the AVC policies. This gives you visibility and helps identify any complexities early.

2. Review Governance and Compliance Risks
   Assess how your current arrangements measure up to the Effective System of Governance (ESoG) requirements, dashboard readiness, and upcoming decumulation requirements. Consider where IDRPs might arise due to poor service or communications.

3. Evaluate Provider Suitability
   Check whether your current AVC providers are supporting digital access, decumulation pathways, and VfM expectations. Is your data clean, structured, and ready for extraction?

4. Decide on Your Delivery Model
   If you opt to manage consolidation in-house, involve legal, investment and actuarial support to obtain advice and assess policy terms, member impact, and necessary communications.

Or, if you work with a specialist provider like Dalriada.DCC, we handle:

• Legal advice (with Gowling WLG)
• Investment advice & actuarial advice (via Hymans Robertson)
• Master Trust administration & investment platform. (via Smart Pension)
• Full compliance, lower charges and reduced trustee burden

Preparing for AVC consolidation begins with a simple question: What are we really holding, and is it fit for purpose? – James Fitzsimmons

How we can help

At Dalriada, we provide trustees with expert guidance to streamline AVC transfers.

Our Defined Contribution Consolidator (DCC) model offers:

• A structured approach to AVC consolidation.
• Compliance assurance with regulatory changes.
• Reduced costs and improved governance.
• Enhanced member engagement and better outcomes.

Looking to consolidate AVCs with minimal hassle? Discover how a structured AVC consolidation can protect your scheme, simplify governance and deliver better outcomes for your members.