By Nausicaa Delfas, Chief Executive of The Pensions Regulator
Challenge and disclosure must be the norm if savers are to get value from their pensionsBut how do we achieve value? Through challenge and disclosure.
Asking the tough questions
The value for money framework, which The Pensions Regulator (TPR) is developing with the Department for Work and Pensions and Financial Conduct Authority (FCA), seeks to enable schemes to compete on metrics that matter and move the focus from cost alone to genuine value for money. We are working in partnership with the FCA on their forthcoming consultation, and urge master trusts and large defined contribution (DC) pension schemes to engage with that process.
Through this framework, the open availability of performance data will allow schemes to compare themselves to the rest of the market. It will also inform trustees’ decisions on whether savers would be better served by consolidation into a larger scheme.
Disclosure is here to stay and should be seen as an opportunity rather than a burden.
We are already seeing how climate change disclosure, as an example, is driving debate and the increased focus on climate-related risks and opportunities.
As a regulator, we will increasingly use disclosure of value for money and other data to constructively challenge trustee decision-making so that savers’ interests are really being met.
But we also expect trustees to be asking tough questions of themselves and their advisers.
In a complex world, we need trustee boards to constructively challenge the advice and investment options presented to them.
TPR does not take a prescriptive approach or instruct trustees on how to invest pension savings. But we do expect trustees to have the right skills, governance structure and access to expertise to consider all asset classes.
The government’s Mansion House reforms are designed to enable the financial services sector to unlock capital for UK industries and increase returns for savers while supporting growth across the wider economy, including investment in “productive finance ”. Examples include research and development, infrastructure and green technologies.
Our Private Markets Guidance, published in January, calls on trustees to ensure they have an appropriate level of knowledge and understanding to be able to work with their advisers to fully consider how accessing private market assets may meet their needs.
The guidance is a response to the growing appetite from the pensions industry and government to explore how investment in private markets, as part of a diversified portfolio, can improve financial outcomes for savers.
If their advisers do not provide information meaningfully, in a way that empowers trustees in their strategic decision-making, then schemes should consider tendering to replace their advisers, or obtaining short-term specialist advice.
Trustees who can navigate this complexity will be able to reap the rewards of the greater resilience and new opportunities that diversification brings – with potential for higher risk-adjusted returns.
Consolidation in savers’ interests
Millions of savers rely on DC pensions to meet their retirement needs and aspirations. It’s vital that we do everything we can as an industry to support them, as we move to a landscape of fewer, larger schemes.
Increased visibility and comparability of data can help to drive competition, innovation and adoption of good practice.
Where the data is telling trustees that their scheme does not offer good value, or where trustees, working with their advisers, do not have the skills and resources to explore more diversified investments, trustees should ask themselves a further tough question: would their savers’ interests be better served through consolidation?
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