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FCA and TPR launch value for money framework on DC pensions

Author: ICAEW Insights

Published: 22 Sep 2021

The framework - published in a joint discussion paper from the regulators - will allow trustees and independent governance committees to compare their scheme’s costs and charges.

The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have published a joint discussion paper on developing a common framework for measuring value for money (VFM) in defined contribution (DC) pension schemes. The aim of the two regulators is to drive a long-term focus on VFM across the sector.

Savers need DC schemes to deliver value for money in order to maximise their retirement income. For the regulators, this means well-run schemes delivering good investment performance that is not eroded by high costs and charges.

To allow good-value schemes to compete, the FCA and TPR are proposing a common framework for disclosing information on the key elements which make up VFM: investment performance, scheme oversight - including data quality and communications, and costs and charges.

“Consumers work hard for their pension savings and it’s important that schemes are really delivering good-value products,” said Sarah Pritchard, Executive Director for Markets at the FCA. “This issue is a complex one which impacts almost all pension savers so it’s important that we get it right. The proposals will help all those making decisions on behalf of consumers really challenge providers on value and allow better comparisons between products.”

David Fairs, TPR’s Executive Director for Regulatory Policy, Analysis and Advice, said that delivering value for money in pensions is a key priority for TPR. Regulators, industry and others must be able to effectively assess value for money to ensure good pensions outcomes. The discussion paper sets out TPR’s ambitions for an industry-wide VFM assessment framework.

Fairs said: “DC savers rely on the pension system working as best as it can over the lifetime of their saving - every penny counts. That's why independent governance committees and trustees need a framework which provides a holistic assessment of what VFM means - beyond cost and charges - to allow them to hold their providers to account and deliver the best possible outcomes for savers.”

The common framework will also allow trustees and independent governance committees to compare their scheme’s costs and charges, investment performance and service standards with similar offerings from other providers.

Disclosures alone will not address the difficult issues surrounding VFM in pensions. Improving data disclosures will be a starting point and the regulators will continue to work with stakeholders to improve saver outcomes over the longer term. The FCA and TPR will use the feedback received in further work towards creating a framework to assess VFM.

Commenting on the discussion paper launch, ICAEW Director of Financial Services, Philippa Kelly said: “We are really pleased to see the regulators taking up the issue of value for money in DC schemes. Private pension savings are vital to funding later life, and there is an increasingly acute need for these savings to work hard for everyone.”

The FCA and TPR are inviting comments on the discussion paper by 10 December 2021 and will publish a feedback statement setting out next steps in 2022.

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