The FCA consultation states that, “Sixteen million people now save into defined contribution pension schemes, many of these workplace pensions. Yet for default arrangements employees do not choose their workplace pension scheme or their own investments. They rely on those making decisions on their behalf to ensure that these schemes deliver value.” That is the justification for the FCA’s proposed framework for these default arrangements to be scrutinised consistently on the basis of VFM.
The proposals include plans for public disclosure of assessment outcomes including a Red, Amber, or Green VFM rating for each arrangement, with firms being required to take specified actions where an arrangement has been assessed as not providing VFM.
The SPP have provided a detailed response to the 220 page consultation, suggesting that non-workplace pension products should be brought within the scope of any new VFM framework in due course; that the proposed threshold of 1,000 members should be halved to 500; and that service quality metrics need greater attention.
Perhaps the most significant SPP recommendation is that the proposed amber rating be changed so that instead of being a broadly negative assessment, it is instead considered “VFM with room for improvement”. The response explains, “Despite there being three indicators, in practice the outcome is binary, VFM or not VFM and the current proposals therefore place overtly negative connotations on an amber rating. This could be solved by making an amber rating “VFM with room for improvement”. And for that improvement to be deliverable, and required to be delivered, within a definitive timeframe of say two years.”
The SPP response goes on to state, “Furthermore, the ability for decisive action for red rated schemes is critical for the success of the framework. Until firms have the ability to do bulk transfers without savers’ individual consent for contract-based schemes, the framework is really lacking a key component to make it successful.”
Sophia Singleton, SPP President, said: “The SPP supports many of the proposals being put forward within this consultation and the overarching objective of improving value for money, but at the same time we are concerned about the volume of data that the proposed framework will require providers to collect and communicate, which in some cases appears disproportionate. We also believe that a change to the proposed amber rating is necessary to increase the effectiveness of the framework and increase the chances of delivering value for money for more savers.”
FCA consultation on its proposals for a new Value for Money (VFM) framework.
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