Pensions providers and industry experts are having their final say on the FCA’s value for money framework proposals ahead of the consultation closing today (17 October).
In August, the FCA laid out plans to provide millions of pensions savers with better value for money.
Under the proposals, defined contribution (DC) pension schemes will be required to publicly disclose how they are doing across the three key metrics.
These are investment performance, quality of service and cost.
Each will be assessed against a red, amber and green ‘traffic light system’ to determine which – if any – need attention.
Poorly performing schemes will be required to provide an action plan of how they will improve or if they don’t, “protect” savers by transferring them to better schemes.
Where schemes are assessed as not delivering value for money, they will be closed to new business until they improve.
The regulator added that this should reduce the number of savers with workplace personal pensions that are not delivering value.
This, it added, will be done through greater scrutiny and competition on long-term value rather than predominantly cost.
If the proposals go ahead, it will be a mandatory requirement for regulated firms to provide an annual report at the end of each calendar year.
The new value for money framework has been produced in partnership with the FCA, The Pensions Regulator (TPR) and the Department for Work and Pensions (DWP).
The FCA is proposing data metrics be disclosed in retirement age cohorts for the three stages of a pension savings journeys: growth, de-risking and at retirement.
The regulator is also proposing to require disclosure of past investment performance at three levels.
The framework is designed to work in conjunction with the Consumer Duty, which states firms have an obligation to deliver fair value from pension products they offer.
The Association of British Insurers’ director of long-term savings, health and protection, Yvonne Braun, said: “The value for money framework could transform the workplace pensions market by driving a more holistic assessment of pension schemes for their overall value proposition and improving the comparability of schemes. We fully support both aims as they should benefit savers.
“It will be crucial to further finesse the metrics to guard against duplicating the Consumer Duty, and to ensure the proposed red-amber-green ratings and their implications do not trigger market disruption.
“It is also very important that the framework is applied to the trust and contract-based market consistently and at the same time.”
FCA unveils plan to give pension savers better value for money
CEO at NOW: Pensions, Patrick Luthi, said he “welcomed the FCA’s efforts to shift focus from purely cost and charges towards a more holistic view of value”.
However, he added that there are “key concerns we believe must be addressed by the FCA to ensure the intended outcomes are realised”.
“Firstly, we are concerned that a one-size-fits-all approach may not fully account for the market’s diversity, without considering the specific needs of different market segments.
“Furthermore, we believe there needs to be a greater focus on risk-based regulation.
“In practice, this should include widening the scope of the framework to include both workplace and non-workplace pensions to reflect the varying risks and protections in these systems.
“We believe that process and metrics used in the consultation need more refinement. For example, the exclusion of forward-looking investment performance metrics could stifle innovation and deter investment in private markets.”
Director and head of DC at LawDeb, Elizabeth Hartree, said: “The UK DC pensions landscape is in reasonably good shape, and we believe it allows for the provision of good outcomes for members.
“Regulatory initiatives that improve those outcomes should be welcomed, but must consider both the intended and unintended consequences.
“The value for money framework – as it stands – has the potential to risk driving provider behaviours that, in our opinion, are not in the best interests of savers.
Aegon pensions director, Steven Cameron, said: “Aegon is supportive of a single value for money framework across all defined contribution workplace schemes – contract and trust-based – to enable transparency and comparability.
“While the aims of the FCA proposals are sound, as always, the devil is in the detail, and there’s a lot of detail and prescription here.
“Our three key concerns relate to the sheer volume of data, the proposed 3-level RAG rating and its commercial implications, and the need for careful implementation with a trial period.
“We have suggested limiting past investment performance to three, five and 10 years, as one year is too short and 15 years looks like ancient history for a current value assessment.
“We also recommend focusing on the last year’s charges, rather than historic administration charges that have little relevance to current value for money.”