As the UK industry is moving from a pensions landscape of thousands of small schemes, towards a concentrated marketplace of complex financial institutions it is crucial that schemes drive value for money for pension savers, according to The Pensions Regulator (TPR) chief executive officer Nausicaa Delfas.
And the way to achieve value, according to Delfas, is through “challenge and disclosure”.
TPR, the Department for Work and Pensions (DWP), and the Financial Conduct Authority (FCA) are developing a value for money framework which seeks to enable schemes to compete on metrics that matter and move the focus from cost alone to genuine value for money.
TPR and FCA are also currently working on their forthcoming consultation, which Delfas said master trusts and large defined contribution (DC) schemes should engage with.
Through this framework, she said the open availability of performance data will allow schemes to compare themselves to the rest of the market. It will also inform trustees’ decisions on whether savers would be better served by consolidation into a larger scheme.
Delfas said: “Disclosure is here to stay and should be seen as an opportunity rather than a burden.”
She pointed out that climate change disclosure is already driving debate and the increased focus on climate-related risks and opportunities.
She said that TPR will increasingly use disclosure of value for money and other data to constructively challenge trustee decision-making so that savers’ interests are really being met.
And she expects trustees to be asking tough questions of themselves and their advisers aswell.
“In a complex world, we need trustee boards to constructively challenge the advice and investment options presented to them,” she noted.
Delfas added that the regulator does not take a “prescriptive approach” or instruct trustees on how to invest pension savings, but she does expect trustees to have the right skills, governance structure and access to expertise to consider all asset classes.
This is especially important as the government expects the pension industry to help boost the economic growth by investing in productive finance, such as research and development, infrastructure and green technologies.
The regulator published its Private Markets Guidance in January, calling on trustees to ensure they have an appropriate level of knowledge and understanding to be able to work with their advisers to fully consider how accessing private market assets may meet their needs.
The guidance is a response to the growing appetite from the pensions industry and government to explore how investment in private markets, as part of a diversified portfolio, can improve financial outcomes for savers.
Delfas said: “If their advisers do not provide information meaningfully, in a way that empowers trustees in their strategic decision-making, then schemes should consider tendering to replace their advisers, or obtaining short-term specialist advice.
“Trustees who can navigate this complexity will be able to reap the rewards of the greater resilience and new opportunities that diversification brings – with potential for higher risk-adjusted returns.”
Delfas added that where data is telling trustees that their scheme does not offer good value, or where trustees, working with their advisers, do not have the skills and resources to explore more diversified investments, trustees should ask themselves a further tough question: would their savers’ interests be better served through consolidation?
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