Kate Smith, Head of Pensions at Aegon comments: “We welcome the FCA’s Value for Money Framework consultation as a major step forward in creating the building blocks to support wider government and regulator pension reforms.
“To improve member outcomes, as an industry, we need to move away from focusing purely on pension costs and charges. Value is so much more than this, it’s also about investment performance and quality member support.
“The FCA consultation, is a big step forward, but as the 46 complex questions highlight, there is a huge amount of detail still to be debated – and we all know the devil is often in the detail.
“We’re particularly pleased to see the emphasis being placed on consistency across contract and trust- based pensions. While this is an FCA consultation, we welcome the clear encouragement for trustees to engage to make sure the details work for trust-based schemes too.
“We’re also relieved that the FCA has confirmed the Framework is designed to work in conjunction with its Consumer Duty. The pensions industry mustn’t end up with two different tests of value.
“The Framework will deliver more transparency and comparability to force consistently poorly performing schemes to wind-up and consolidate with larger, better performing schemes. While a Red, Amber, Green rating has the benefit of simplicity, it’s important to put this in the context of the huge amount of underlying data. Pensions are very long-term investments which may at times go through temporary periods of underperformance, so the key is to focus on making improvements.
“One key blocker to making progress is that the FCA concedes that providers of group personal pensions are not currently able to transfer members in bulk even where their arrangement is not offering value. We are keen to see legislative change prioritised here.
“Supporting the government’s UK growth agenda, schemes and providers will have to disclose the spilt of UK and non-UK assets for listed and unlisted assets. Although these won’t form part of the Value for Money rating, this is another clear indication that the government wants pension assets to be used to support UK growth.
“We are pleased that the FCA has not set an implementation timetable and instead will review this with DWP, HMT and TPR following stakeholder feedback to this consultation. With so much detail still to be agreed, this makes sense. We also need to better understand when the Pension Schemes Bill will deliver for trust-based schemes. Having two different start dates wouldn’t be helpful for consumers, advisers, or the pensions industry.”
Patrick Luthi CEO at NOW: Pensions, comments: “Value for money is at the heart of all we do at NOW: Pensions and we welcome the aim to achieve comparative assessments that drive real value for members. But as ever, the devil is in the detail and we are keen to engage with this government, regulators and industry to ensure the intended effect is successfully achieved.
“It is a challenge to apply universal, yet truly comparable ‘value’ metrics, in a market which has developed different sub-sectors – both in terms of the trust based vs retail regulatory structures, and the various sub categories within those sectors. But also in terms of member demographics. This is particularly the case in terms of communication and engagement led metrics. Enabling engagement is a key characteristic for any scheme, but as the FCAs own data indicates the propensity for engagement increases with wealth. It is likely that the metrics proposed will reflect the scheme demographics more than the features or value that a scheme offers.
“Fundamentally, the VFM framework must drive more value for the members than the additional costs such a framework adds. We have been keen to see a one-off data gather for regulators to test the scale and extent of variances across the metrics, which would help to fine tune the implementation approach and also focus regulatory intervention and transparency on key areas of risk.
“We’re looking forward to ongoing engagement with FCA, TPR and DWP to contribute to the final form of this significant development for savers and the industry.”
John Yates, Principal, DC Proposition Leader, said: “The FCA’s new consultation, in collaboration with TPR and DWP, is a welcome and perhaps overdue development. It has long been known that a consistent Value for Money (VfM) framework could force underperforming pension schemes to improve or close, therefore improving outcomes for members.
“If schemes are obliged to disclose their VfM assessment on a consistent basis, we may see a greater level of transparency allowing scheme sponsors and their members to understand how their scheme is performing compared to other schemes.
“It’s well-known that many decisions about pension schemes today are still driven by costs and charges, but this new framework should change that. It’s positive that investment performance and service quality are becoming a greater priority, but a traffic light system might be a reductive measurement of the complexities of the underlying data and metrics.
“However, by adopting a more holistic approach, it allows value to be consistently measured across various types of DC schemes using a broader set of criteria, now paving the way for better retirement outcomes for pension savers. “
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