Trustees of workplace defined contribution pensions schemes and the wider pensions industry are being urged to help shape the introduction of a new value for money (VFM) framework.
The Pensions Regulator (TPR), The Financial Conduct Authority (FCA) and the Department for Work and Pensions (DWP) are working in partnership to develop a framework to improve the value schemes deliver for savers and enabling comparisons to be made across the defined contribution (DC) pension landscape including contract-based and trust-based schemes.
The FCA has launched its consultation for contract-based schemes ahead of the DWP introducing equivalent legislation for trust-based schemes in an upcoming Pension Schemes Bill.
Under the proposals, pension schemes will be required to publish and be compared on metrics that demonstrate value, including on investment performance, costs and charges, and service quality. Camille Blackburn, director of wholesale buy side at FCA said that transparency should drive better competition, focused on true long-term value rather than short-term cost.
She added that poorly performing schemes will be required to improve or, if they don’t, ultimately protect savers by transferring them to better schemes. This should lead to better-value pensions, without savers themselves having to take action.
The framework is expected to support the FCAs secondary growth and competitiveness objective. It will enable providers to invest in assets which could deliver greater long-term returns but have higher management costs, such as infrastructure or venture capital, said Blackburn.
Nausicaa Delfas, TPR chief executive, said: “We want every pension saver to get value for money from their pensions. That means good investment returns, and high-quality services, for a competitive price.
“This is a great opportunity for the pensions industry to help to transform pension saving for millions, and to deliver greater value for their retirement.”
Nina Blackett, executive director of strategy, policy and analysis, said: “Automatic enrolment has meant more people than ever are saving into defined contribution pensions – the challenge now is to ensure they get good value.”
Blackett added that the vast majority of trustees want to do their best for their savers, but she acknowledged it is challenging for them to understand the value that their schemes are delivering, and that is because comparison across schemes is so difficult currently.
She added that, currently, schemes do not measure the same things, and they measure in different ways. “What this means is that, faced with what is a complex and confusing choice, employers often decide based on cost alone,” she said.
Blackett said the regulators want schemes to publicly disclose how they are doing across the three pillars of value: investment performance, quality of service, and cost.
She said: “This disclosure is what’s needed to enable effective competition in the market, which will enable good schemes to do even better, and encourage poorly performing schemes to exit the market.
“We encourage trustees of trust-based schemes to respond to the technical detail of the consultation, with a view to ensuring the final framework can be applied effectively to trust-based schemes.”
Timeline
The FCA consultation will run until 17 October and follows confirmation in The King’s Speech that the government plans to legislate via the introduction of a Pension Schemes Bill to ensure all pension savers are saving into schemes which deliver value through the value for money framework. The Bill will establish a standardised test for value for trust-based DC schemes.
There is currently no timeline on when the schemes will have to start reporting their performance, as TPR and FCA are “keeping an eye” on the government’s intended legislation. However, the duo is “keen” to do this quickly.
Read the digital edition of IPE’s latest magazine
No comments yet