Why AVC Consolidation is the Future of AVC Governance

The evolving landscape of AVCs

Additional Voluntary Contributions (AVCs) have provided members with a way to boost their pension savings.  However, as the pension landscape evolves, legacy pension arrangements, including AVCs, are increasingly under scrutiny, prompting many trustees to explore pension AVC consolidation as a strategic response. As trustees you face mounting regulatory obligations, aligned with the legal requirement to operate an Effective System of Governance (ESoG), proportionate to the size, scale, nature and complexity of your scheme’s activities. For Defined Contribution arrangements, including AVCs, this includes providing Value for Money and enabling better member outcomes. Yet, for many AVC arrangements, meeting these standards is a growing challenge.

Why the status quo is no longer viable

The reality is that many AVCs remain on outdated platforms with poor functionality, limited online tools, and high costs. Your members are left with inadequate engagement, suboptimal investment options, and fees that can exceed 0.75% per year. Trustees, in turn, face increasing governance burdens, from reporting requirements to member complaints and managing Internal Dispute Resolution Procedures (IDRPs) caused by poor service and administrative errors, typically disproportionate to the size of the AVCs in the scheme. This not only consumes trustee time but also potentially signals deeper governance failings that need addressing ahead of the Own Risk Assessment.

Regulation continues to evolve. For schemes with 100 relevant members or more, AVCs will need to connect with the Dashboard, which may be a significant challenge for some of the legacy AVC platforms. Following the 2024 King’s Speech it is expected that the 2025 Pensions Bill will require DC schemes to offer retirement solutions, potentially with Trustees needing to implement a default decumulation arrangement. AVCs do not seem to be excluded from this, meaning that trustees will need to implement an entire decumulation framework, irrespective of the size of their AVCs.

Meanwhile, providers are stepping away from AVCs altogether – Santander exited the market in 2024, and others may follow.

Thus far there has been no effective viable alternative market for AVC assets.  However, the Dalriada.DCC
solution now provides the viable alternative, enabling trustees to decide: continue managing AVCs with increasing complexity, costs and governance requirements, or take advantage of the smarter, more efficient alternative.

The benefits of AVC Consolidation

Consolidating AVCs into a well-governed DC Master Trust offers a solution that benefits both trustees and members:

• Lower costs – You can reduce ongoing operating costs and your members pay significantly lower charges, ensuring better Value for Money.
• Stronger governance – You can ease your Scheme’s compliance burden, including oversight of IDRPs, while improving the governance of your AVCs.
• Modern investment options – Improved fund choices and digital tools enhance the member experience.
• Administrative efficiency – Less reporting and fewer service-related issues free up your time.

By taking action now, you can future-proof your AVCs, through pension AVC Consolidation, ensuring they remain compliant, cost-effective and aligned with evolving member expectations. A proactive governance strategy will not only enhance member outcomes but also reduce risks, costs and the administrative strain for trustees.

Is your scheme prepared for the future?

Get in touch to explore how our AVC consolidation model can help.