A Value for Money framework is being developed as part of the government’s ongoing discussions to improve the outcomes for defined contribution (DC) members and make it simpler for business experts and pension savers to evaluate DC pension plans.
Although supporting the government’s plans for the framework, the global consultancy Mercer feels there are some areas where the government should do more and provides solutions for health, wealth, and careers.
Mercer partner and UK DC consulting leader Gail Philippart says: “We support the idea of a harmonised Value for Money framework and in particular, how that would give schemes a clear pass or fail. This makes it very clear to those governing schemes whether urgent action needs to be taken.
“While comparison with at least three other schemes’ investment returns is being suggested as a possible approach, we support the proposal in not just using investment return league tables. Comparison tables may lead to the herding of investment strategies (as we have seen in different countries) and potentially, stifle innovation.
“Disclosure of administration and investment costs separately is a big step forward for transparency, allowing the proper assessment of providers in their role within DC pension provision.”
The title “Value for Money” suggested a renewed emphasis on costs, Philippart said, despite the consultation’s wording saying otherwise.
Philippart says: “We believe the new framework should support and require the delivery of higher quality, member-focused outcomes which represent good overall value rather than considering cost in isolation. There is currently no link between investment targets and member outcomes in the proposed framework,
“We believe there should be a stronger focus on how the investment return targets are delivering targeted good member outcomes and not a simple cash or inflation plus target.
“Additionally, sustainability does not feature strongly. Both in the ESG sense and in the sense of the pension scheme continuing to be good quality and supported into the future (apart from the future investment return).
“Mercer research conducted in January 2023 indicates that circa 45 per cent of DC schemes do not have ESG considerations incorporated into their defaults. We believe sustainability factors should be included in the Value for Money framework, as in general, people are happy to pay more for things if they are better quality or will last longer.”