The Government’s proposed Value for Money Framework adopts the retirement cohorts and chain-linking methodology used by CAPAdata to show the performance of DC pension schemes.
This data provides a comprehensive overview of the UK workplace pension sector, including both trust and contract-based schemes, and is the basis of Corporate Adviser’s Master Trust and GPP report.
The FCA, DWP and TPR have launched a new consultation on the Value for Money framework, which will require all schemes to publish standardised data on their performance, costs and services.
This consultation makes clear that this new data will focus on the same three cohorts used by Corporate Adviser: growth-phase investors 30 years from retirement, savers who are five years from retirement and those at-retirement.
It will also use the same ‘point in time’ approach when compiling backwards-looking investment metrics. This will be based on the annual performance of multiple cohorts as they each pass through a given point in the retirement journey, with this figure aggregated into a geometric average.
The consultation document states: “The use of geometric averaging focuses on the long-term performance of a portfolio at a given YTR point. In other words, it answers the question ‘what would be the long-term average experience if an individual was to hold this portfolio over time?’”
It also proposes ‘chain-linking’ default funds, in order to stop providers ‘masking’ poor performance by launching new default strategies.
The original framework proposed this approach and this latest consultation states: “most respondents supported this approach but there was concern it could potentially discourage consolidation into better performing arrangement by diluting reported performance.”
As a result the regulators said that they are proposing widening the exemptions to chain-linking. These wider exemptions will mean that arrangements that have a three-year performance history, will not need to chain-link to previous arrangements.
This includes those with a three year history in-scope of the VFM framework, or those that would have been in scope pre-2028 had the framework been in place.
Click here to get information on the performance of all workplace master trust and GPPs on the CAPAdata site.
