Regulators’ value for money paper branded ‘utopian’ by SPP

The discussion paper was published in September, and suggested ways of forcing defined contribution schemes to disclose more data around investment performance, scheme oversight, and costs and charges, with the aim being to create an “holistic framework” for assessing value for money in the sector.

As Pensions Expert reported at the time, the proposals were an attempt to push forward the drive to reduce pension costs and charges by providing transparent and comparable information, while providing more detail on how to practically use value for money tests to create pressure for scheme consolidation.

As well as allowing members and the industry itself to compare costs and charges, the proposed framework would allow trustees and independent governance committees to assess investment performance and service standards, which are also important in determining whether a particular scheme is delivering value for money.

It advocated improving data disclosures as a “starting point”, with the hope being that once the data is available, “market solutions” for using and comparing data “will begin to emerge”, with the framework as a whole building on existing regulatory requirements across both trust-based and contract-based workplace pension schemes.

But the SPP criticised the paper as impractical, taking issue with a number of the proposals.

In particular, it argued that the paper’s sole focus on accumulation when creating its value metrics was “non-holistic” and “potentially misleading”, arguing that it is “difficult to see how decumulation cannot be considered an integral part of the value chain”.

The SPP also foresaw a risk that “some schemes which offer reasonable value will be encouraged into making precipitous changes where the outcome benefit to members could be marginal or even negative”. 

“For example, consolidation into a scheme with marginally better value for money may actually be a poor decision for members once factors such as transition costs and loss of employer subsidy (eg, for paying administration and other professional fees) are taken into account,” it said.

The SPP also argued that “different levels of climate change ambition and targets, or wider [environmental, social and governance] factors” would not “bear direct comparison between schemes and nor do we believe that a value metric based exclusively on investment performance can reflect the changing priorities of trustees and members, tolerances and ambitions for sustainability, corporate and societal change”.

It also criticised proposals to bring in an independent convenor to set metrics, arguing that TPR and the FCA should not “absolve themselves from responsibility for this”, and argued against any suggestion that the costs of such a convenor should be borne by the industry as opposed to the regulators.

“We would also ask that schemes are given enough time to improve standards in these areas. For example, improving communication — whatever that means — in a scheme may take several attempts over several years,” it continued. 

“If schemes are fearful of being forced to wind up if they cannot improve over, say, 12 months, then short-term fixes and bodges are likely to become the norm rather than long-term meaningful solutions.”