A new consortium of defined contribution (DC) pension providers has drafted in an Australian pension ratings company to support its work on evaluating value for money.
The collaboration, which calls itself Pound for Pound, met for the first time this week. The group consists of DC master trust providers The People’s Partnership, Smart Pension, NatWest Cushon, Aviva, Legal & General and TPT Retirement Solutions, as well as Australia’s SuperRatings.
According to a press release, the initiative aims to “explore how the UK pensions market can move beyond cost-based comparisons and instead assess performance through broader value-based metrics”.
SuperRatings provides ratings for superannuation funds across Australia, assessing their default funds, investment options and retirement offerings. It considers costs, performance, member services, governance and other factors.
A ‘major shift’ for pension funds and providers
Jamie Fiveash, Smart Pension’s chief executive officer, said the forthcoming value for money framework “has the potential to be a real force for good” for the UK’s pensions sector.
“We desperately need a set of standard measures, particularly those such as net returns, to move the market from cost to value,” Fiveash said. “If we listen to the Australian experience and carefully consider learning’s both positive and negative, we can deliver better outcomes for savers.”
Patrick Heath-Lay, chief executive officer of The People’s Partnership, said: “As a pension provider, shining a light on how we ‘measure up’ on value in a transparent and consistent way is a major shift but one that we must all rightly embrace.
“This needs to be introduced in a well-planned and effective manner that aligns to government reforms, enables effective regulatory oversight and most importantly instils greater confidence in the pension system for savers.”
“Though no system is perfect, there’s a lot to learn from our colleagues in Australia about their value for money outcomes regime.”
Zoe Alexander, Pensions UK
Zoe Alexander, director of policy and advocacy at Pensions UK, the industry trade body, added that measuring value would be “complex” and require “clarity and evidence to establish the most effective data points”.
“Though no system is perfect, there’s a lot to learn from our colleagues in Australia about their value for money outcomes regime and we look forward to testing this in the UK context,” Alexander said.
Industry focus moving from cost-only towards value for money
The move follows an employer pledge, announced earlier this month, that companies would shift their focus from cost-only to a wider consideration of value when selecting and evaluating workplace pension options.
The Financial Conduct Authority is currently working on establishing a value for money framework for contract-based pension arrangements, which will also cater for trust-based schemes once complete.
The Pension Schemes Bill contains measures requiring pension scheme trustees to report regularly on value for money issues, paving the way for the regulatory regime.
The government wants pension schemes and providers to take a “holistic” view of value, including services and investment returns as well as costs.
According to the government’s “roadmap” document setting out its timetable for reforms, it expects the first value for money assessments to be delivered in 2028.
