FCA Progresses Framework for Driving Long-term Value for Workplace Pension Savers

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.

Sarah Pritchard, Executive Director of Markets and International at the FCA, 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.”

Emma Reynolds MP, Minister for Pensions, said: “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.”

Nausicaa Delfas, Chief Executive of The Pensions Regulator, said: “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.”

Becky O’Connor, Director of Public Affairs at PensionBee: “It’s currently close to impossible for people to compare pension plans between providers and to know whether they are getting a good deal. There is arguably no other product or service people pay for that they know so little about.

“As this consultation highlights, there is more to value for money than cost. Better transparency, as well as education, could help pension savers work out if they are getting a good deal in the same way they do for other financial products. It should also mean that if they are not happy, they can move their pension more easily to one that represents better value.”

The FCA is seeking feedback on the framework for pension schemes it regulates. The Government has recently announced its intention to legislate so that the framework can also apply to schemes regulated by TPR, and feedback is also invited in relation to these schemes. Responses will be shared with the Government and TPR to support swift development of a consistent approach once legislation is in place.

The framework is one of a number of joint initiatives to deliver better outcomes for pension savers including the Advice Guidance Boundary Review and the Pensions Dashboard.