The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have published a joint discussion paper on developing a common framework for measuring value for money in defined contribution (DC) pension schemes.
The aim is “to drive a long-term focus on value for money across the pensions sector”, they said in a statement.
DC savers can only maximise their retirement income if their scheme delivers value for money and the regulators said that this will only be possible if “well-run schemes deliver good investment performance that is not eroded by high costs and charges”.
To allow good value schemes to compete, the FCA and TPR are proposing a common framework for disclosing information on the key elements which make up value for money; including investment performance, scheme oversight – including data quality and communications, and costs and charges.
‘Challenge providers’
Sarah Pritchard, executive director for markets at the FCA, said: “Consumers work hard for their pensions savings and it’s important that schemes are really delivering good-value products.
“This issue is a complex one which impacts almost all pension savers so it’s important that we get it right. The proposals will help all those making decisions on behalf of consumers really challenge providers on value and allow better comparisons between products.”
David Fairs, TPR’s executive director for regulatory policy, analysis and advice, added: “Delivering value for money in pensions is a key priority for TPR – all part of our work to put savers at the heart of what we do.
“Regulators, industry and others must be able to effectively assess value for money to ensure good pensions outcomes. The discussion paper sets out our ambitions for an industry-wide value for money assessment framework.
“DC savers rely on the pension system working as best as it can over the lifetime of their saving – every penny counts. That’s why independent governance committees and trustees need a framework which provides a holistic assessment of what value for money means – beyond cost and charges – to allow them hold their providers to account and deliver the best possible outcomes for savers.”
Details
The common framework will also allow trustees and independent governance committees to compare their scheme’s costs and charges, investment performance and service standards with similar offerings from other providers.
The regulators said that disclosures alone “will not address the difficult issues surrounding value for money in pensions” and they believe “improving data disclosures will be a starting point”.
The FCA and TPR will use the feedback received in further work towards creating a framework to assess value for money.
The regulators are inviting comments on the discussion paper by 10 December 2021 and will publish a feedback statement setting out next steps in 2022.
Importance
Tom Selby, head of retirement policy at AJ Bell, said: “There are few policy issues in financial services as important as ensuring defined contribution pension savers get good value for money from their retirement pot.
“This is particularly the case in the workplace pensions market, where the pension scheme is chosen by the employer on behalf of the member. Sipps, on the other hand, are chosen actively by individuals.
“The areas of focus set out by the regulators today are absolutely the right ones, with costs and charges front-and-centre.
“While there are other elements to value for money, including investment performance and member communications, the amount contributed to a pension and the amount paid in costs and charges are the two things people can control.
“If the new value for money metrics proposed by the FCA and TPR helps to drive down prices and increase standards across the retirement market, that can only be a good thing for savers.”
