Identifying value for money when choosing a holiday, a restaurant or a car is relatively straightforward – if the consumption is immediate.
However, in the pensions world, where the eventual outcome is many years away and members themselves are often not sure exactly what they want, assessing value for money is much harder.
Defined contribution scheme trustees and independent governance committees nevertheless have specific duties to act in the interests of scheme members, to make an objective assessment as to whether members are receiving value for money from their workplace pension arrangements and to report on their findings.
I expect to see more focus on detailed benchmarking products from IGCs and their providers
But the practical reality of fulfilling these duties has not proved to be quite so simple.
The trustees, IGCs and providers I work with are clear that value for money is about maximising good member outcomes and that, although charges are important, there is more to value for money than price.
Member engagement critical
In particular, as the first annual chair’s statements and reports have emerged, it has become clear that successful member engagement is critical to discharging trustee and IGC duties around value for money.
There is recognition from trustees and IGCs that what members themselves value is important and tends to be different to industry perceptions.
However, while trustees and IGCs have typically gained some useful information on member views from employers through focus groups, roadshows and internal surveys, members remain largely apathetic towards pensions, and it has proven difficult to get detailed insights from members directly despite trustees’ and IGCs’ best efforts.
To address this, IGCs, with the support of their providers, are currently collaborating in an extensive research programme. Conducted by an independent third party across the contract-based landscape, the research will help to understand what members themselves see as important when it comes to pensions, not just those in the industry.
This initiative will help IGCs explore members’ motivations, aspirations and perceptions. Specifically, the study is designed to help IGCs take on board what specific factors are important to members, whether it be accessing DC flexibilities, choice of fund range, charging structures, effective communications, online or telephone support, or a range of other factors.
No doubt the outcome of the study will influence IGC actions in 2017 and beyond, and it is therefore well worth trustees of DC schemes who are struggling to access their own membership base looking to IGC publications for guidance and insight.
Comparing across the industry
Much of the work in assessing value for money to date has been on a particular provider’s own products. There has been relatively little appetite, particularly on the contract-based side, for comparing offerings between different providers.
I believe that there is a general willingness among IGCs to build on the work undertaken in relation to understanding member views, and to carry out some sort of comparison or benchmarking exercise that looks beyond their own provider’s offering.
This does of course come with its own challenges, particularly the extent to which soft factors such as quality of communications, support and education can be measured alongside hard measures such as charges, investment returns and transaction costs.
Break down DC charges to assess value for money
As expectations of future investment returns are downgraded, it is becoming even harder to ensure that people put enough aside for their retirement, but what is the answer?
The issue of requiring managers to disclose transaction costs in a standardised format has recently made some progress, but remains some way off being resolved.
Some larger DC scheme trustees, with the help of their investment consultants, are slightly further down the road on measuring hard factors but there is some way to go here.
However, as the recent Financial Conduct Authority consultation on transparency on costs moves to the next stage, I expect to see more focus on detailed benchmarking products from IGCs and their providers.
While there are still some mountains to climb when it comes to assessing value for money, the industry is well and truly travelling in the right direction.
Jacqui Reid is associate director at Sackers
