The Financial Conduct Authority (FCA) has published updated proposals to its Value for Money (VFM) framework consultation.
The framework is intended to support a shift in the way the workplace pensions industry operates and competes.
The FCA has proposed revisions to make the way arrangements are assessed and compared more objective and robust, while also responding to feedback.
Proposed changes include the introduction of forward-looking metrics to be considered alongside backward-looking metrics in assessments; fewer cost and backward-looking investment performance metrics, focused on key metrics; and streamlined service quality metrics to allow further engagement with the industry.
Other potential changes include comparisons of value against a commercial market comparator group rather than three other arrangements; and a four-point rating system, rather than three, to allow identification of top performers.
The FCA welcomes consultation responses from employers operating contract-based workplace pension schemes, trustees and sponsors of trust-based schemes, defined contribution (DC) pension scheme savers and beneficiaries, pension scheme service providers, other industry bodies and professionals, employers and civil society organisations.
It is also looking for feedback from independent governance committees (IGCs) and governance advisory arrangements (GAAs), consumer organisations and representatives with an interest in pensions and financial capability, pensions administrators, and any other interested stakeholders.
Respondents should reply to the FCA and the Pensions Regulator, which will share responses with the Department for Work and Pensions.
Helen Forrest Hall, chief strategy officer at the PMI, said: “The new framework is a positive step towards better saver outcomes. Streamlined service quality indicators, more focused cost and performance measures and a broader comparator group show regulators have listened. The four-point rating system is a win for fairness and competition. Clear communication will be critical to avoid confusing members.”
Philip Smith, DC director at TPT Retirement Solutions, added: “Consolidation is a central trend in DC pensions, however, achieving significant size alone doesn’t guarantee better member outcomes. VFM is the vital tool to hold schemes to account, so that members benefit from effective scale, driving greater efficiency, governance and innovation.
“Crucially, the VFM framework will lead to increased scrutiny of the investment performance of DC schemes, and help employers and advisers move away from cost-dominated provider selection. Over time, we would also hope that the framework is extended to objectively assess the quality of guided retirement solutions, which will become increasingly important to outcomes as the DC generation matures.”
Emma Douglas, wealth policy director at Aviva, said: “We are glad to see that forward-looking performance metrics are under consideration and that there is recognition of the important role of trustees and IGCs in exercising judgement when reviewing the VFM data.
“Ultimately, these proposals could be a game-changer for pension savers by making sure their money is working harder for them, providing clearer information and greater confidence that their retirement savings are being managed with their best interests in mind. Poorly performing schemes would be required to improve or transfer into better-performing ones, meaning savers shouldn’t need to take action to benefit from stronger returns.”
