Pensions savers stand to benefit from a new proposed framework designed to shift the focus from costs to long term value, and ultimately deliver better retirement savings.
The Financial Conduct Authority (FCA), the Department for Work and Pensions (DWP) and the Pensions Regulator (TPR) aim to implement a joint framework for workplace defined contribution schemes.
The joint framework would be used by pension providers and those making decisions on behalf of savers to provide greater transparency over how schemes are performing.
Schemes will be compared on public metrics that demonstrate value – not just costs and charges, but also investment performance, and service quality. They would, once the final framework is decided, be publicly rated red, amber or green.
Poorly performing schemes will be required to improve or ultimately protect savers by transferring them to better schemes. This should lead to better value pensions, without savers themselves having to take action.
The proposals will also support the FCA’s secondary growth and competitiveness objective. Focusing on value rather than costs will enable providers to invest in assets which could deliver greater long-term returns but have higher management costs, such as infrastructure or venture capital.
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By GlobalDataCommenting on this, FCA executive director of markets and international, Sarah Pritchard, said: “16 million people save for their retirement into defined contribution pension schemes. We’re working with the government and the Pensions Regulator to help them get better returns.
“We want to see a focus on long-term value, not just costs and charges. Given the impact these changes could have we are consulting now to ensure that the pension system can be ready to go when the legislative changes that need to happen are ready.”
Minister for pensions, Emma Reynolds, added: “Last year, over £130 billion was saved into workplace pension schemes – money which we want to see working hard for future pensioners to give them better retirement incomes.
“Our Pension Bill and Pensions Review will make pensions fit for the future, and having an effective Value for Money framework will lay the foundations for this. I would encourage responses from across the industry, including trust-based schemes, to this consultation.”
The Pensions Regulator chief executive, Nausicaa Delfas, concluded: “We want every pension saver to get value for money from their pensions. That means good investment returns, and high-quality services, for a competitive price. This is a great opportunity for the pensions industry to help to transform pension saving for millions, and to deliver greater value for their retirement.”
