Pensions Regulator  

Further work needed by regulators on value for money drive

Further work needed by regulators on value for money drive

The industry has questioned whether regulators can consolidate existing requirements to obtain value for money in defined contribution schemes rather than introduce new rules.

In a feedback statement by the Financial Conduct Authority and the Pensions Regulator, the watchdogs outlined responses to their joint discussion paper which was published in September.

The two regulators announced proposals to force DC schemes to disclose more data around their investment performance, scheme oversight, and costs and charges.

At the time, they said greater transparency and disclosure would make it easier for people to spot when a scheme delivers poor value, as well as compare schemes.

However, in its feedback statement today, the regulators said they would need to continue consulting on this as there are a number of areas where there is no clear consensus as to the way forward. 

There was agreement that a holistic approach to assessing VFM was needed and that the three elements it had proposed were the right ones. 

Most respondents welcomed the proposals but there was less consensus on how to measure each of these elements.

Respondents expressed a desire for the regulators to build on the work that has already been carried out in VFM assessment.

Feedback to benchmarking was mixed, and many were, on the whole, not supportive of benchmarking VFM elements separately at this stage. 

The statement said this was due to the importance of taking a holistic view of VFM and the complexity of developing benchmarks that can account for the wide differences in scheme characteristics and investment objectives across the market.

Where possible, these respondents were keen that regulators "'carefully consider” whether there is scope to rationalise existing requirements rather than introduce new ones.

TPR’s executive director for regulatory policy, analysis and advice David Fairs, said: “We and the FCA are determined to drive a long-term focus on value for money across the pensions sector and welcome the depth and breadth of responses to our discussion paper on a common framework.

"Particularly welcome is the broad consensus from industry that we need a better assessment of value for money to deliver stronger outcomes for savers in areas such as costs and charges and investment performance. But we acknowledge this is a complex area and there were many views on our proposals which need further consideration."

Investment performance

The regulators proposed that public and consistent disclosures of investment performance data would better allow decision-makers to judge whether a scheme’s investment strategy was performing in line with reasonable expectations, and to consider if continued underperformance over the longer term would indicate poor scheme design and value for savers.

Many respondents agreed but they also emphasised the approach to disclosure must take into account the intended audience.

There were mixed views as to whether investment performance should be disclosed as net or gross of costs.