Several members of the UK pensions industry have called upon the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) to consider various other factors in addition to costs in their targeted framework to assess and promote value for money (VFM) for defined contribution (DC) pension schemes.
In their feedback statement on a joint discussion paper they published in September, the regulators stated that “it is hard to compare investment performance, quality of service, and costs and charges between schemes”.
The FCA and TPR confirmed there would be further development on common measurements, allowing industry professionals and pension savers to better compare DC pension schemes, but the majority of respondents stated a need to consider other issues in addition to costs.
Rita Butler-Jones, co-head of DC at Legal & General Investment Management, said the firm was supportive about having a common VFM measurement framework.
She added, however: “We are encouraged by the direction of travel that VFM should focus on more than just costs and charges – a transparent, consistent framework also needs to consider factors such as investment performance and quality of service to drive the best possible outcomes for members.”
Peter Glancy, head of policy at Scottish Widows, agreed.
“The new much broader assessment of value for money is seeking to predict scheme member outcomes at retirement, where a mix of factors each play important roles, including charges, but also especially investment returns and the interactions which members have with their scheme provider, which in turn can inform or influence important decisions which they might want to make.”
Gail Izat, workplace managing director at Standard Life, added: “Further consideration should be given to how the framework can be adapted for direct consumer use, enabling meaningful comparison of potentially complex issues such as investment performance, service and cost.”
She noted that consumers will want to know that they are receiving value “regardless of who regulates their pension and the cross-sector commonality suggested by this process will aid this”.
“Whilst we welcome greater transparency and consistency in this area, particularly between trust and contract-based schemes, an overly simple approach may give misleading impressions of value,” said Laura Andrikopoulos, head of governance at Hymans Roberson.
“For example, lower costs but a poorer quality investment strategy and little flexibility at retirement do not necessarily represent better member outcomes or value than a higher cost scheme. A few simple metrics won’t necessarily bring a level playing field for all DC members. It is vital that the focus is not just on cost but on long-term member outcomes,” she said.