The UK pensions industry has expressed concerns about elements of new government proposals to reform the DC pensions market.
At the weekend Chancellor Jeremy Hunt unveiled plans to boost disclosure requirements, forcing schemes to publish details on performance, costs and the percentage of assets invested in the UK economy. As part of these reforms he said he wanted to see poorly performing schemes closed to new members.
While this beefed-up disclosure regime has been welcomed by many, the head the UK’s largest pension scheme has cautioned against “excessive” government intervention.
Carol Young, CEO of the £73 billion Universities Superannuation Scheme (USS), supports new disclosure requirements but expresses concern over potential government directives on fund allocation.
Meanwhile The People’s Partnership director of policy Phil Brown says that this new regime will be “challenging” for some providers — and called for the Value for Money regime to be extended to retail providers, to ensure a more level playing field across the pensions landscape.
Brown says: “It was only a matter of time before the proposed Value for Money framework developed teeth. This could be very challenging for some, but the government has long signalled its intention to consolidate the workplace pensions market and drive better value for savers. We think that the value for money framework should be extended to retail pensions now. Without transparency and comparability, most people face a choice they aren’t prepared for, unless they are paying for financial advice.”
Aegon welcomed the fact that there would be further consultation on this Value for Money framework, pointing out that it was important that comparisons of ‘value’ between larger schemes were meaningful.
Aegon’s head of pensions Kate Smith explains: “Value for money for pensions is about much more than getting the lowest possible charge – it’s also about getting good consistent investment returns and high quality customer services and support.
“It’s important all members are saving in schemes offering good value for money so it makes sense that consistently poorly performing schemes should not take on new business until they improve, or subsequently wind-up. However much care is needed in defining a poorly performing scheme. Different schemes can adopt different investment strategies which can lead to divergence in returns in the short term, making it important to assess investment performance over a sufficiently long timeframe.”
She adds: “Just as schemes can be different, so too are the employers they serve. One key aspect of the consultation will be making sure comparisons against larger schemes of over £10 billion produce meaningful results. Currently there are few schemes with assets of over £10billion, and fewer commercial schemes which will be prepared to allow poor value schemes to consolidate with them. Importantly, it costs less as a percentage of funds to run a scheme for a large employer with a stable workforce and high average contributions than one for a small employer with low contributions and high staff turnover.
“We understand the government’s and regulator’s desire to speed up scheme consolidation, but this needs to be reflected in the framework to make sure all cohorts of employer can assess the value they are receiving compared to others like them.”
