The Financial Conduct Authority has this evening (7 August) laid out plans to provide millions of pensions savers with better value for money.
Under the much-anticipated 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.
Altogether, 16 million people now save into defined contribution pension schemes, many of these workplace pensions.
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).
TPR interim executive director of strategy, policy and analysis, Nina Blackett, said: Over the last decade, our big challenge has been to get people saving into workplace pensions.
“Thanks to the success of automatic enrolment, participation has doubled, and we now have 8 out of 10 workers saving into a workplace pension.
“That brings us a new challenge – which is to ensure that every saver gets value for money.
“We see value as being made up of a combination of investment returns, high quality services, delivered at a competitive price.”
She added: “We know that the vast majority of trustees want to do their best for their savers, but it’s challenging for them to understand the value their schemes are delivering, and that’s because comparison across schemes is so difficult currently.
“Schemes don’t measure the same things, and they measure in different ways.
“What this means is that, faced with what is a complex and confusing choice, employers often decide based on cost alone.
“That’s why this value framework is such an important tool for us.”
She added that the proposals would “enable good schemes to do even better, and encourage poorly performing schemes to exit the market. ”
Within the DC market, auto-enrolled workplace pensions are the fastest growing segment.
By the end of December 2023, over 11 million workers had been automatically enrolled.
The FCA said: “The employee’s role in selecting an AE pension is limited, and in practice, individual savers are typically not engaged with their workplace pensions.
“In the absence of significant saver engagement or ability of savers to directly influence provider performance, they are dependent on their employer to do so.
“While many employers want to support the long-term wellbeing of their employees, they don’t have a direct financial interest and switching a scheme is costly.
“While some employers will take great care in selecting a provider and arrangements, for some, cost and ease of administration may have been the primary consideration.”
Pots at retirement are smaller than they otherwise would be with some savers stuck in underperforming defaults for a sustained period of time, it added.
By promoting a focus on key performance indicators, the framework “challenges firms to assess and reflect what makes the most difference to saver outcomes”.
“We believe the framework will play an important role in driving a shift from cost to long term value in workplace DC schemes,” the regulator concluded.
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.
Under the plans, the disclosure of several sub-asset classes could also be required.
These include different bond types and types of listed and private equities, as well as the split between listed/unlisted assets and UK/non-UK assets.
Finally it is also proposing that the split between listed and unlisted assets for all asset classes is disclosed.
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.
Trustees of workplace DC pensions schemes and the wider pensions industry are being urged to respond to the public consultation, which runs until 17 October.
TPR chief executive Nausicaa Delfas described the framework as “a great opportunity for the pensions industry to help to transform pension saving for millions.”
Given that employers who fit the criteria for establishing and operating an Automatic Enrolment RBS incur stiff penalties if they don’t, it’s hardly surprising that it’s been a success.
I wonder how much this is going to cost the employers?.
Pay peanuts what do you expect? QWPS are shackled by fee restrictions and whilst charges are always an important consideration if you pay peanuts you get….
Pension market has been decimated by forced fee reductions which in most cases have left providers no choice bit to offer very basic contracts or pull out altogether.
I have never in 38 years of advising on pensions, read so much rubbish attributed to come from the current regualtor. Auto enrollment, is a National Scam by Product Provider influance over the past years of shambolic pension ministers. As stated above, we have around 11 milliion unadvised investment clients being ripped off by product providers, and now we see the “In House” dog fighting by providers over existing pots of funds. Not only has the “Horse Bolted” those who left the gate open are enjoying thier so called Industry commentating carears.
Well, Job No.1 would be to shut down the failed FCA and and save the poor saver etc circa 18% of his costs…
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.
Who will be making the decisions and taking responsibility for future performance?
Where schemes are assessed as not delivering value for money, they will be closed to new business, until they improve.
Who will decide this? ‘Value for money’ is arbitrary at best…
Sigh. They’re clueless aren’t they?
Let me posit something.
On the Left the government sends round its commissars with their badges and guns> They shoot you and take away your stuff and do what they want with it.
On the Right the governments sends along it gauleiters with their badges and guns, they tell you exactly what you must do with your stuff and (a) if you don’t do it they shoot and do it anyway or (b) when what they have told you to do goes wrong (as it always does) they blame you and shoot you anyway.
Points for guessing which action applies best the Financial Catastrophe Authority.