The Financial Conduct Authority has launched a consultation on improving value for money on contract-based workplace pensions.
These proposals aim to make it easier for Independent Governance Committees (IGCs) and Governance Advisory Arrangements (GAAs) to compare the value for money of pension products and services.
This will bring regulation more in line with that surrounding master trust workplace pensions.
The consultation paper – Driving Value for Money in pensions — is on specific FCA proposals for a simplified framework for this annual value for money assessment process. This includes a definition of value for money, and three key elements of value for IGCs to use when conducting their assessments.
The FCA has also published a review looking at how IGCs and GAAs operate at present in regards to workplace pensions. It found a number of IGCs are working well. However, the FCA said a lack of consistency in the way these bodies operate means members of some workplace pension schemes may not be receiving value for money.
The review also found that:
- Some IGCs lack the necessary independence and were ineffective at challenging firms to ensure value for money for workplace pension scheme members
- Those IGCs which maintained independence from the firms whose pension schemes they had responsibility for delivered better outcomes for pension scheme members
- GAAs operated by third-party firms on behalf of pension providers were less effective at delivering meaningful improvements in value for money;
- Over the period of the FCA review (2017-2019) it found there had been a small reduction in charges across all pension savings, although this cannot be directly linked to the work of IGCs and GAAs
The FCA is inviting consultation on its proposals until September 24.
Commenting on FCA’s launch of Its Driving Value for Money in pensions consultation, Hymans Robertson, head of DC governance consulting, Laura Andrikopoulos says: “Value for Money (VFM) has become a familiar term across occupational pensions so the ability to make these comparisons will be useful for the industry.
“The move towards a standardised format to assess VFM is one that may well help drive greater independence of IGCs. We also welcome the increased collaboration with TPR to ensure VFM requirements share similar principles across both trust and contract-based arrangements.
“It is vital however, that with the introduction of any changes, focus is not lost on member outcomes, which is critical to the assessment of long-term “value”. Value is not only about cost, but should be a holistic assessment taking into account the quality provided for that cost, levels of company contributions, and the ultimate outcome achieved through smart investment strategies and good retirement support.”
Aegon’s pensions director Steven Cameron adds: “It makes sense for a common definition of value for money to apply across the whole workplace pension market, covering both group personal pensions and master trusts.
“We are pleased that the FCA consultation avoids excessive prescription and is instead focussing on higher level principles as this will allow IGCs to continue to reflect the profile of their provider’s workplace pension book and the quality of services offered in their value for money assessment.
“The requirement to identify and compare against comparable offerings across the market requires more detailed consideration. With different providers prioritising different aspects of their propositions in different target markets, it would be a backward step if ‘apples and pears’ comparisons led to unfounded challenges or worse still a flight to lowest charges rather than highest value.”