The government has unveiled reforms that will disclose and compare the value of defined contribution (DC) workplace pension schemes, aimed at delivering value for money for savers and boosting fairness and predictability.
Pensions minister Laura Trott has launched a consultation on a new Value for Money framework, developed in partnership with The Pensions Regulator and the Financial Conduct Authority, on proposals for pension schemes to provide savers with better value from their investments, with the aim of closing the inequality gap created by the decline in “secure” defined benefit (DB) and now-commonplace DC pension schemes.
Trott said: “There is a pension inequality gap between those who had secure retirements thanks to DB, to much more uncertainty now. Since 2012, automatic enrolment has transformed the pensions landscape in the UK for the better, but we know there’s more to be done to ensure a fairer future for savers.
“Being in an underperforming pension scheme can lead to someone missing out on thousands of pounds. The Value for Money framework and our new measures will improve security and create better returns for savers, so they can enjoy the retirement they’ve worked so hard for.”
DC pensions’ value for money
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A package of measures includes the consultation on the new Value for Money framework, reforms of DC scheme charge caps, and an extension of the newly-created collective defined contribution (CDC) pension schemes.
David Fairs, executive director of regulatory policy, analysis and advice at The Pensions Regulator, said: “Ensuring every pound that savers put into their DC pension pot delivers value for money is vital to help people achieve the best possible retirement. The measures announced as part of this far-reaching reforms package deliver on our commitment to put savers at the heart of all we do.
“Our joint Value for Money framework will drive greater transparency and standardisation of reporting across the DC pensions market, allowing trustees to make more informed decisions and improve long-term outcomes for savers. I urge the industry to take part in these important consultations.
Executive director of markets at the Financial Conduct Authority, Sarah Pritchard said: “Pensions are complex, and savers need to be able to trust that their providers have the information they need to make the right choices. These proposals will help ensure that they take a wide-ranging and long-term view – value for money is not just about costs and charges.”
The Value for Money framework will improve transparency, comparability and competition between DC pension schemes, requiring providers to “disclose key metrics and service standards shifting focus from a dominant consideration of costs only, to enable a holistic assessment of VFM,” according to the Department for Work and Pensions.
The DC pensions’ value for money measures – due to come into force in the Spring – will require schemes to disclose their approach to illiquid assets and provide information on schemes’ overall investment asset allocations.
An average worker will have approximately 11 jobs in their career, accruing multiple small pension pots and risking them losing track of their pension savings and creating inefficiencies. The government is also launching a call for evidence on solutions that will enable savers to achieve better outcomes.
The government is also consulting on how to improve CDC pension schemes, which see both the employer and employees contributing to a collective fund, exploring the idea of what multi-employer CDC schemes should look like and how to maximise their benefit for savers.
The consultation and calls for evidence close on 27 March 2023.
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