Kate Smith, Head of Pensions at Aegon, comments: “The proposed Value for Money (VfM) framework has the potential to transform the pension market and provide better member outcomes where every pound saved counts. All pension schemes and Independent Governance Committees carry out value for money assessments and publish their findings, but they don’t do it in exactly the same way, or at the same time, which makes comparisons challenging. The VfM framework will change all of this, mandating a consistent, transparent approach published each October, eventually across all pension schemes, with the initial focus on workplace default funds used for auto-enrolment. It will lead to much greater data collection across the pensions industry and assessments using common metrics and templates to allow pension schemes to be compared, with benchmarking to follow.
“There is still a lot of to work to do before the proposals become regulations and effective, including the development of benchmarks, how and where the VfM assessments are to be published and crucially whether the Pensions Regulator will be given powers to force consistently poor value schemes to wind up. It will also be essential to understand precisely how the VfM framework interfaces with the FCA’s new Consumer Duty. But by the end of this decade it’s likely that the UK will have far fewer but larger pension schemes as a direct consequence of the new VfM framework, which hopefully will be a good thing for members while retaining enough choice for employers and individuals.”
Tim Middleton, PMI’s Director of Policy and External Affairs, said “this consultation has been issued jointly by the DWP, FCA and TPR, and this shows unity of purpose in seeking real value for pension savers. It is important to note too that the consultation sees value not simply in terms of low management fees, but also considers the extent to which funds achieve their intended performance. The public should be encouraged by such a thorough approach.”
Martin Willis, Chair DC Committee, Society of Pensions Professionals comments: “We welcome the proposed measures announced by the Government today, including its stated ambition to increase value for money in pension schemes. The last year has emphasised what many in the industry have been saying for some time - charges are just part of the picture and many other factors contribute to value including investment strategies and engagement.
“It is critical to make sure default investment strategies deliver good outcomes, but in a world where people can take benefits in different ways and at different times, we need to recognise these strategies are aiming at a moving target. Success will include consideration of different asset classes but equally it is vital members understand their options and the impact these can have. Engagement and understanding must also be part of the value proposition.
“It is also worth noting that Trustees have been considering and reporting on value for many years now and although though more tangible reporting on this is welcome it is also important that Trustees remain empowered to make decisions that represent the best value for their members. As an example, there are situations where individual members may lose valuable guarantees if schemes as a whole are consolidated based on headline value assessments.
“This also applies to the challenge of small pots. It its strongly desirable to have a structure that will help people consolidate these funds in general, not just to increase efficiency but to help people understand their benefits and ensure they are not left in investment strategies that are no longer suitable. However, the complicated history of legacy pension arrangements means that any solution needs to have various protection measures to ensure people don’t lose valuable benefits. Whilst policies with guarantees are rarer than they were when auto-enrolment was introduced they are very much still in existence.
“The suggestion of opening up CDC to multi-employer schemes makes sense – it’s clear that there is appetite for the retirement income options CDC offers, and multi-employer schemes offer the scale needed to get these arrangements off the ground. That said it remains to be seen whether there is significant appetite amongst those who would run these schemes, including existing master trusts, to set them up.”
Laura Andrikopoulos, Head of Governance, Hymans Roberson, says: “We are pleased to see today’s consultation from the DWP, and it is clear that feedback from the pensions industry surrounding value for money (VFM) has been listened to and included reflecting previous concerns. The commitment to change thinking from cost focus to long-term outcomes is much welcomed, however we would like to see this go further and for the metrics approach to include consideration of explicit outcomes metrics. The long-overdue approach for small schemes and residual members is a strong signal that pleas for greater pragmatism and proportionality have been heeded. The lack of focus on governance while disappointing is understandable, with a metric approach still favoured and the issue of quantifying remaining a complex challenge for many.
“We welcome the radical reform of the Chair Statement and believe this is very much overdue given the way the document has evolved into a long and complex compliance document since its inception. We hope the final response following the consultation will result in significant changes to the current requirements, and eagerly await further details on the impact this will have within the DC pension marketplace.”
Mark Pemberthy, Benefits Consulting Leader at Buck:
“It’s clear that The Pensions Regulator (TPR) and the Department for Work and Pensions (DWP) are serious about raising standards when it comes to DC schemes and Value For Money. It’s a positive sign that the government and the Regulator are continuing to seek input from the industry to ensure that members are receiving the best possible outcomes.
“Today’s announcement is another sign of the government’s commitment to its policy of encouraging DC scheme consolidation. TPR’s data shows this policy is already bearing fruit. The latest data shows the number of non-micro schemes, including hybrid schemes, has fallen steadily from 3,660 to 1,370 since 2012. However, the rate of consolidation hasn’t accelerated yet although these latest developments, combined with the enhanced value for money tests introduced for smaller schemes in late 2021, look set to have an impact on next year’s report.
“This latest consultation also represents a shift in focus towards the member, by proposing that all schemes use a common template and potentially publish their conclusions in a central public location, making it easier for members to compare the overall performance of their own pensions with the wider market.
“Schemes will need to prepare carefully for these disclosures and ensure that they incorporate the requirements into their planning. As always, this workload is going to disproportionately impact on smaller schemes, who should enlist the support of their DC consultants to adapt their reporting – or to plan their consolidation journey.”
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