- Joint framework for measuring the value for money (VFM) represents the next step in plans first outlined last year, with the FCA launching a consultation which is due to close on 17 October 2024
- FCA, Department for Work and Pensions and The Pensions Regulator want to ensure trustees, providers and independent governance committees (IGCs) test whether workplace defined contribution (DC) schemes offer value for money
- Regulators and government say the framework will provide more transparency over costs and charges, investment performance and service quality
- Plans include the introduction of a ‘traffic light’ ratings system on workplace pension schemes’ value for money
- FCA also expects industry to create ‘league tables’ to make it easier to compare schemes
Tom Selby, AJ Bell director of public policy, comments:
“The aim of the value for money (VFM) framework is to deliver an easy way for schemes to compare themselves against their peers to find out if they offer equally good service to customers.
“The metrics are expected to cover a wide range of areas including past investment performance, charges, communications and administration. Ultimately, this all needs to be digestible for trustees and providers if they’re to make use of the information, with the industry expected to develop ‘league tables’ curated by industry commentators which compare and contrast pensions.
“While it is relatively easy to compare modern investment platform SIPP accounts and review the performance of funds you might select on a platform, it is comparatively difficult to get hold of information on workplace pensions. Savers should get a statement every year outlining what fees they’re paying and the investment returns delivered, but many aren’t sure what to do with that information and how to benchmark their current provider against alternative options. So increased transparency and tools to make it simpler to compare pension products is a step in the right direction.
“Having a common framework will push pension schemes to compare the value for money they offer on a like for like basis. This will hopefully encourage, or even shame schemes, into improving their offering to customers – whether that means better investment performance, lower charges, slicker service or a combination of all of those things.
“This is all part of a co-ordinated effort to drive better outcomes for pensions savers, alongside the ongoing Advice Guidance boundary review and Pensions Dashboards, which is a project that has been around for years but has yet to deliver any tangible benefit for consumers.
“It is crucial to keep a firm focus on what pension savers really need to help them make informed choices. Simple, straightforward information is key, presented in a way which is easy for consumers to use when they’re choosing pension products.”
