Almost 90 per cent of pension consultants do not believe that the new value for money (VfM) framework will deliver better member outcomes.
This was the result of a poll at the Corporate Adviser Summit. These views were reflected in a panel discussion at the event, where a leading trustee, pensions legal expert, and consultant expressed concerns about how the new traffic light system would work in practice.
The key concern was that few contract or trust-based schemes are likely to rate themselves as ‘amber’, as this would mean they could no longer accept new business — something that would be commercially damaging. Schemes will be able to select three other schemes to compare themselves against in a value for money rating, which may lead them to pick comparators that show them in a favourable light.
Sackers partner Jacquie Reid described this traffic light system as a “crude measure” and expressed particular concerns about how it would be used in a trust-based environment.
She also voiced concerns about the reliability of some of the data that may be used to make these VfM comparisons, particularly in the early years of this initiative.
“No matter how closed the question is, many providers may still answer differently, which could introduce a degree of unreliability to this data,” she said.
Aon principal Chris McWilliam agreed that these traffic light measures remain crude. He pointed out that while he approved of the drive to assess schemes on overall value, and not just cost, there was a danger that the government was pushing two potentially competing agendas. “We are seeing a push towards private equity as a means to deliver better member outcomes, but this is likely to push up costs, and there may be a delay before better returns are registered due to the nature of these investments. How is this going to be assessed within the value for money framework?”
He also highlighted significant questions about how schemes assessed as ‘red’ and offering poor value for money would switch members en masse, particularly if these were contract-based schemes, which might require approval from each member. He added that many of these schemes might also have legacy guarantees or GMP issues. Again, questions remained about how these issues would be reflected in VfM assessments.
Trustees also expressed concerns. Vidett client director Kevin Clark said that from an IGC perspective, questions remained. He said he had reviewed the “in-depth” information published by the Financial Conduct Authority to date. One issue, he noted, was that “a lot of the data points and metrics refer to past performance, but there is nothing about the future”. For example, if a scheme had made significant changes to its default fund investments or revamped its communications, this should potentially be reflected in these assessments.
However, Clark said that if IGCs do their job properly, they should be reviewing these various metrics and taking steps to ensure that schemes retain a ‘green’ status, which should help ensure better outcomes for members.
There were questions from the audience, though, as to whether this policy initiative would help consultants, trustees, or regulators calibrate pension schemes if they were all ‘a sea of green’.
Many wondered if there was scope for a range of ‘green’ ratings to help differentiate schemes, or perhaps a way to use traffic light ratings for different aspects of a scheme’s structure, rather than having one overall rating.
Reid concluded: “The question is, what problem is this policy trying to solve? If that were clearer, we might be able to work out the best way to present this information.”
