The Pensions Regulator and Financial Conduct Authority have set out plans for a more unified approach to assessing value for money across different types of DC pension.
The regulators are proposing an industry wide-benchmark for trust- and contract-based workplace pensions, as well as non-workplace pensions.
These proposals have been published in a discussion paper, and both regulators are inviting comment from the industry before December 10, with the view of putting in place a single framework for measuring this important metric.
The regulators have indicated that this won’t purely focus on cost and charges. Other issues, such as customer service and engagement will be taken into account as well as good scheme governance. In the discussion paper the regulators stress these factors can make a meaningful different to long-term retirement outcomes.
Currently trustees and IGCs have to publish whether their scheme providers value for money, but each uses a slightly different approach.
This move has been welcomed by many in the industry. Hymans Robertson head of DC governance and partner Laura Andrikopoulos says: “A common framework is essential to support members’ in understanding to what extent their current arrangement provides value regardless of its overarching trust or contract-based structure.
“Currently there are a number of definitions of ‘value for members’ and ‘value for money’ in play which hinders proper comparison and transparency. We look forward to seeing a joined-up approach to value assessment in DC pensions that puts member outcomes at the heart of its considerations of what really constitutes good value, as opposed to a narrower focus on charges that fails to capture the complete picture.”
Aegon head of pensions Kate Smith says: “A value for money framework, with published metrics and benchmarks, should enable trustees and IGCs to better compare their scheme with other providers and pension schemes.
“But the devil will be in the detail as creating benchmarks is likely to be challenging.
“The defined contribution market is incredibly competitive from a costs and charges perspective. But being cheap doesn’t necessarily mean value for money. We therefore welcome that the regulators are looking beyond purely costs and charges to other equally important aspects of value for money, such as investment performance and scheme oversight including data quality and communications.
“Support for members and employers is increasingly becoming an important scheme feature which helps improve member outcomes.”
She adds: “Value for money is clearly at the top of the regulator’s agenda, with the new value for money assessment about to become effective for occupational pensions schemes with assets of less than £100,000 as part of the DWP’s consolidation agenda. Having a value for money framework will enable trustees and IGCs to clearly see whether their scheme provides value for money in the accumulation stage, and if not, nudge them to making improvements or consolidate into a scheme which does provide value for money for members.”