Nausicaa Delfas, the chief executive officer of The Pensions Regulator (TPR), said the pensions industry needs to support innovation in order to provide value for savers.
She said that this needs to be done so that pensions deliver a “pot that enables savers to have confidence, empowerment and security in later life”.
She continued: “We need to do this to support savers when they come to use their money. After 40 years of work, a time in which most people rarely if ever think about pensions, savers face an incredibly complex choice about how to support themselves into the future.
“And we need to do this to make the process of decumulation clearer and more accessible, and to ensure we protect savers from scams, poor advice, and lost value.”
But she pointed out that there is “lack of innovation and fluidity in the market” which is leading to significant investment risks and the employers “lack incentive to move providers”.
She added: “Many trustees rely heavily on their advisors, who are almost totally focussed on driving down cost — that has to change if we are to deliver real value, with advisors competing on that instead.”
This is why, she said, TPR is working with the Department for Work and Pensions (DWP) and the Financial Conduct Authority (FCA) to develop a value for money framework which will “equip those making decisions on behalf of savers, and those advising them, with the tools they need to enable a clear focus on delivering good pensions outcomes”.
The framework will also increase transparency and competition in the market and drive-up standards across the board, she said.
Delfas pointed out that pension schemes and the market are already evolving, pledging that TPR will help shape the market and drive improvements.
She said that where there may be barriers or practical issues, TPR will work with the market to address them, but she made it clear that TPR would be challenging trustees not prepared to leave the market and put savers into better run schemes if they cannot meet the standards TPR expects.
“Our position is clear: no saver should be in a poorly performing scheme that doesn’t offer value for money.
“Where we find poor performance, the message is clear: wind up and put your members into a better run scheme. Or we will consider all powers at our disposal,” she warned.
Value for money must be a priority
Paul Waters, head of DC markets at Hymans Robertson, said that innovation was “the most important” element of Delfas’ speech.
He said: “Innovation is central to unlocking the opportunities that are out there for improved member outcomes. TPR’s clear direction for the industry to focus on this is encouraging and it’s important this is followed through by positive engagement throughout the industry on new product design and digital engagement with a close and coherent policy regime with the FCA.”
He said that value for money must be a priority, noting that costs and charges are important but not if quality and suitability of service or performance are poor. “There is a need for a focus on growth and cost over returns. The race to the bottom on charges is harming members and constraining opportunities unnecessarily,” he added.
Innovation, according to Henry Tapper, executive chair of AgeWage, is a “new word” in TPR’s lexicon.
He said: “The pensions challenge is to ‘make workplace pensions work’ and to respect the shift from employer to saver. It recognises the particular challenge savers have at retirement.”
He added that delivering value for savers and shifting focus away from driving down costs is a “quite new agenda” for the regulator. But he added that innovation from the private sector has so far been “stifled”.
“TPR challenges in this powerful speech – trustees and founders should challenge back. Now is the time for action from the regulated and the regulator.”