Regulators have set out the challenges they are grappling with in devising a new ‘value for money’ framework, designed to provide more quantitative metrics for comparing pension schemes.
In a panel discussion at Corporate Advisers Master Trust and GPP Conference, it was clear there was agreement between the main regulators covering different parts of the workplace pension market.
The Pensions Regulator policy delivery lead Lisa Leveridge said it was important that this framework had a more qualitative approach. She said TPR was currently looking at how to address issues such as costs, given the wide range of charging structures and the fact that many schemes will impose different costs on schemes of different sizes.
She said TPR was actively looking at how this information could be expressed as an annual percentage charge.
John Reynolds pensions and funds policy department for FCA says the purpose of this new value for money framework was to drive better outcomes for pension members and savers. However he stressed that as it currently stood the information would be designed for professional industry users, rather than ordinary investors, although he said that members will get to see the results of these value for money assessments.
“We are aware of the potential for wrong decisions, as we extend this framework into other areas,” he said and this would be something that the regulators remained cognisant of as it developed this work.
Department of Work and Pensions DC pensions policy manager Des Healy adds that government did not want to see member opting out of an AE schemes, for example, if the scheme performs badly and is deemed to be not providing value of money. This was a risk they were conscious of and he said he wanted to see schemes do more to improve standards, or merge with other providers, rather than members leave and risk losing employer contributions.
Healy says that the the government is calling for evidence from the industry and would look to take this into account when developing this value for money framework. He said he would also like to include ‘forward looking’ metrics’ as well as past performance data when it came to analysing value for money on investment performance. He said that the government continued to look at the example of similar legislation in Australia, but added he did not forsee such drastic action as schemes being closed down after two years if assets underperformed. One aspect under consideration was whether a two-year time frame was reasonable to assess these issues.
The panel admitted that there was a risk that these metrics regarding value for money might curb innovation across the sector, with providers opting for more vanilla or middle-of-the-road propositions, however Reynolds said he did not think this was a significant risk.
Leveridge said that by looking at a range of metrics she hoped this would encourage more diversify of offerings. She added that when it came to the comparing scheme much of the focus to date had been on cost which did not always deliver optimum investment portfolios for members.
Reynolds also said the FCA was conscious that some providers may launch new defaults in a bid to disguise past poor performance. He said the regulator was minded to look at metrics that would involve performance across various different default options.
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