The Financial Conduct Authority and the Pensions Regulator are to force defined contribution schemes to disclose more data around their investment performance, scheme oversight, and costs and charges.
In a joint discussion paper on delivering value for money in pension schemes, out today (September 16), the regulators said greater transparency and disclosure would make it easier for people to spot when a scheme delivers poor value, as well as compare schemes.
The regulators stopped short of proposing collecting a new set of data, however.
Instead they said they wanted to build on the existing data, primarily ‘administration charges’ and ‘transaction costs’.
Defined contribution workplace pension schemes are already required to disclose the costs and charges that members can expect to bear or have borne to date.
Asset managers too have to disclose and assess the value for money offered by the investment funds they provide.
The regulators said they would build on these existing requirements when implementing measures for all DC schemes.
They said: “While some parts of the pensions industry currently offer value for money, there is an inconsistent approach in different parts of the pensions sector. This may be related to the resources and data firms have made available over time to assess value.
“For example, the very large workplace scheme pensions market has good data to compare scheme costs. However, even here, industry has identified the need for better use of metrics to assess investment performance, quality of services and scheme oversight to drive a shift to long-term value.
"Some schemes, especially larger ones, are managed at much lower cost than the industry average, with providers competing primarily on price.”
They added requiring additional public disclosures would come at a cost and schemes, and their savers, would ultimately bear these costs. However, delivering poor value was coming at a cost too, they explained.
“Any measures would therefore need to be designed in a way that is proportionate."
“Ultimately, we want a system that drives the pensions industry’s focus and resources into ensuring DC pensions offer good long-term investment performance, and higher service standards, at reduced costs and charges."
Options for disclosure
The regulators identified several options for how costs and charges could be presented.
One option was to use the existing definitions - administration charges and transaction costs – to separate the fixed ongoing costs, such as annual management charges, from the variable costs incurred from transactions.
When schemes of under £100m assets under management carry out their more detailed value for money assessments, they will then be required to use these definitions when comparing their costs and charges to those of other schemes.
The regulators said cost disclosures using these definitions will “most easily facilitate the use of the same metrics" across the whole pensions landscape, helping individuals to understand the costs and charges for all their pensions in the same way.