Consultants and providers have responded to the FCA proposals to improve value for money in workplace pensions, saying more work is required to ensure fair and consistent assessments.
Premier Pension head of employer services Sue Pemberton says the firm welcomed the consultation, noting that the current guidance around the structure of Independent Governance Committee reports is not clear enough, leaving room for providers to avoid addressing the issues they feel are not a priority or are too difficult to assess.
Pemberton says: “Investment governance and performance is an area that has become more transparent in recent years, but the regulations should require providers to publish results in a uniform format so they can be reported on and compared against their peers. This would go a long way to enabling IGCs to make effective comparisons. However, more needs to be done to facilitate truly accurate comparisons.”
She says the comparative information required to provide a full and effective assessment is not readily available. “Providers fall into two camps: those that offer an off the shelf solution with static fees and services, and those that underwrite schemes individually based on their commercials. Evidence of the range of charges and services being provided in this second group is not currently easy to access.”
She says it remains to be seen if providers will publish potentially sensitive information to make these comparisons possible.
“Providers who underwrite their schemes would have to report on their default fund charges and services provided, as well as their investment performance and governance strategy. The FCA’s consultation paper suggests selecting a small number of comparable schemes and this would rely upon providers publishing potentially sensitive information. I can’t see any provider willingly reporting on this information.”
As she points out many providers offer schemes to a wide range of clients – big and small, with vastly different profiles. Pemberton asked how the IGCs would measure ‘value for money’ effectively across the whole range of schemes on offer?
For example they may provide excellent value for money for large schemes but be way out of line for more modest arrangements.
“Taking an average might be possible, but this could be manipulated if the ‘average’ was not also defined. For example, is it the average charge experienced at member level or scheme level? And how would service be measured – perhaps by member surveys?”
There is a great deal of work required to ensure the comparisons are fair and give an accurate assessment of the value for money being provided.”
Meanwhile Isio partner Richard Birkin says that independence and diversity in defined contribution governance boards are essential elements in ensuring members achieve value for money. A lack of independence and diversity can result in competing interests taking precedence.
He says: “”Governance boards and underlying pension providers have largely grasped this, and when we walk employers and ceding trustees through a provider selection exercise, a strong governance structure including independence and diversity have moved up their shopping list.
“Quality providers have reacted to this: actively managing the independence and diversity of the board and ensuring transparent governance models.
“The carrot has worked for a large part of the industry and today’s FCA announcement is the stick for those that haven’t kept pace.”