- TPR and FCA are consulting on the new value for money framework for workplace pensions, with assessments expected to be published from 2028
- Savers will be able to see league tables showing how their workplace pension schemes compare to others based on charges, returns and quality of service
- Government has also set out the ‘roadmap’ timetable for workplace pensions reform, including creating 20 defined contribution ‘megafunds’, alongside other reforms such as consolidation of dormant small pots and introducing default retirement options for workplace pension savers
- Combined with pensions dashboard, which DWP indicated will be launched next year, league tables should help pension savers view and compare pensions more easily
Rachel Vahey, head of public policy at AJ Bell, comments:
“The Government has set out an ambitious programme of reforms that has the potential to transform workplace pensions, making it easier for people to compare pensions and switch to get a better deal.
“Pension savers deserve to know how well their pension scheme is performing. ‘Traffic lights’ league tables must be easy to understand and help people make more informed decisions about their retirement savings, rather than burying them in technical language or complex metrics.
“We support the introduction of a Value for Money framework that shines a light on the quality of pension schemes. But to do that government cannot focus on just one measurement of ‘value’ and instead must look at the whole package for members; costs, returns, but also quality of service and support. The framework must measure genuine long-term value and avoid creating incentives to chase short-term investment performance or adopt a one-size-fits-all approach.
“Combined with pensions dashboards, these reforms have the potential to create a new generation of more engaged savers. For the first time, people will be able to see what pension savings they have built up across different providers, alongside clearer information about how well those pensions are delivering for them.
“Greater transparency should empower people to take control of their retirement planning. Whether that means increasing contributions, reviewing their investment strategy or consolidating pension pots with a provider that better meets their needs for information, service, price, or wider investment choice, giving them more opportunity to improve their long-term retirement outcomes.
“The roadmap provides more certainty, but the pace of change across the pensions landscape is unprecedented. Consolidation, small pots, retirement solutions and Value for Money are all substantial reforms in their own right. Government and regulators must now maintain a clear focus on sequencing, consistency and practical delivery to make sure reforms create better outcomes for pension savers, rather than just a relentless announcement of change."
Value for money assessments
From 2028, larger workplace pension schemes will complete and publish Value for Money assessments, showing pension savers how well their pension scheme is performing on the basis of cost, investment returns and administrative support. Schemes will be scored and rated from red (for poor value) through to green (outperforming on value).
The poorest performing schemes will have to improve or close.
Guided retirement
Under the proposed Guided Retirement framework, starting from 2029 pension savers will have to be offered default pension income solutions, designed by trustees and providers. The default solution offered will depend on the pension scheme but could be a combination of annuity and drawdown, or a collective solution (designed on a collective defined contribution basis).
Pension savers do not have to accept the default option; they may be offered other solutions under the workplace pension, or they could transfer to another pension scheme to build their own more personalised retirement income solution.
Pensions Dashboard
The pensions dashboard will allow people to see details of all their pension plans in one place – including both state pension and private pensions. It will show which scheme or provider the pension is with, including contact details, as well as both the current value of the pension and what income it could provide at retirement age.
Initially, people will be able to access this information by accessing a dashboard offered by MoneyHelper, the Money and Pensions Service (MaPS). In time, it’s expected other companies - for example a pension provider, employer or bank – will also be able to offer a pensions dashboard.
It’s expected the MaPS Dashboard will launch next year.
Consolidation of workplace pensions
Pension savers could see significant changes to their pension schemes over the next few years. The scale provisions require all defined contribution multi-employer schemes which are used for automatic enrolment to have assets of at least £25 billion in a single main default arrangement.
This will mean that some pension savers are moved to different pension schemes, as their workplace pensions go through a transitional period.
