Value for Money Framework should look beyond historic investment performance and charges if the reforms are to deliver better outcomes for pension scheme members, says Independent Governance Group (IGG).
IGG says it supports the government’s objective of creating clearer and more consistent assessment across investment performance, costs and charges, and service quality and welcomes the proposed phasing, an initial six-month data collection period, the return to geometric averaging for backwards-looking investment metrics and a simplified approach during the first year.
But it argues that the proposed service quality measures remain too basic to reflect how trustees assess value in practice and calls for further development of the framework to capture member understanding, confidence and the ability to take action, alongside more consistent measures of administration performance.
It calls for a broader assessment of investment value, with risk, portfolio resilience, ESG integration, decumulation aims and differences in investment strategy reflected alongside past performance and charges.
It also calls for a more meaningful assessment of service quality, moving beyond basic administration measures to consider factors such as member understanding, communications, digital journeys, targeted support and the ease with which members can understand and act on their options.
It mentions a genuinely transitional approach to implementation, with the first year used to test and improve data quality and comparability, rather than drawing overly firm conclusions or driving decisions from immature data.
It also notes careful application of consequences for poor value, ensuring that the framework supports better trustee decision-making without inadvertently driving inappropriate consolidation or transfers based on immature or inconsistent data.
Finally, it concludes that clearer guidance on data and disclosure is needed, recognising the practical challenges around historic data, chain-linking and asset allocation. This is particularly likely where schemes have undergone transfers or consolidation, or invest through pooled, layered, multi-asset or private market structures.
IGG trustee director and head of policy and external affairs Louise Davey says: “We strongly support the ambition behind the Value for Money Framework and the move towards a more consistent focus on the outcomes members receive. But for the framework to work, we need to make sure we are comparing like with like. Data needs to be robust and comparable, while giving trustees sufficient flexibility to reflect differences in investment strategy, risk and retirement objectives. That is particularly important in the early years, when the focus should be on testing the framework and improving the data, rather than allowing immature comparisons to drive potentially significant decisions.
“Value for money also extends well beyond investment performance and charges. The quality of service members receive, whether they understand their pension and retirement choices, and whether they can act on that information are all fundamental to good outcomes. Getting those measures right will be critical if the framework is to give trustees better information, raise standards and ultimately improve members’ retirements.”
