The Pensions and Lifetime Savings Association (PLSA) has raised concerns about the FCA’s proposed Value for Money (VfM) framework, describing it as overly complex and potentially misleading for savers.
It warned that its rating system may obscure differences in scheme performance and deter investments in higher-risk, long-term assets.
The PLSA responded to the CP24/16 framework by acknowledging the FCA’s industry engagement, but they also highlighted that the framework’s goals could be undermined by conflicting goals.
It criticised the Red-Amber-Green (RAG) rating system for potentially requiring an excessive amount of data, which might mask significant performance variances and cause employers and savers to make bad judgements.
The PLSA also made clear that an emphasis on returns focused on short-term (one to five years) “will discourage allocation to higher risk-returning assets, which are seen as key to shifting emphasis from cost to value.”
It also made the argument that savers could face negative outcomes when tempted to switch to non-workplace consolidators, which often charge higher fees without offering better services, and stresses the importance of including these options in market discussions.
PLSA deputy director of policy Joe Dabrowski says: “We support the drive to improve Value for Money and, done right, this initiative has the potential to drive improved outcomes for savers. However, it is complex and at this stage in its development, the level of ambition and scope of the proposed framework risks creating some unintended issues and losing sight of the intended outcomes.
“To be workable, the overall quantum of disclosure should be reduced and simplified. This should include the removal of the asset allocation metrics, which are not clearly linked to value; a rationalisation of service metrics; and we also recommend data disclosures are conducted, at least initially, on a private basis, so that industry and regulators can assess which data points are useful, comparable and fair, and which are not.
“Such an approach would improve the proportionality of the overall initiative, which currently risks being overly burdensome – particularly given the risk that the objectives will not be met. Finally, the RAG scale needs to be more graduated to avoid cliff-edge results which render the amber score meaningless, and to enable providers genuine opportunities to improve before they close to new business.”