UNITED KINGDOM: FCA Proposes New “Value for Money” Assessments on Workplace Pensions

Thursday June 25 2020

The FCA have published a new Consultation Paper to promote value for money for members of workplace personal pension schemes.

The proposals aim to make it easier for Independent Governance Committees (IGCs) and Governance Advisory Arrangements (GAAs) to compare the value for money of pension products and services

Consultation

The consultation includes:

• feedback to our questions on whether there is a need for clearer rules and guidance on how IGCs should assess VfM in CP19/15
• proposals to specify a simple framework for the annual IGC VfM assessment process, including a definition of VfM and 3 key elements of value
• a requirement for the IGC to assess whether its pension provider offers VfM compared with other options on the market and consider whether comparable schemes offer lower administration charges and transaction costs
• a discussion section on whether we should impose a specific obligation on pension providers to provide VfM

The FCA want to promote a consistent approach to assessing VfM and have proposed the following new requirements on providers to ensure their IGCs:

• Take into account 3 key elements of value: charges and costs; investment performance; and services provided (including member communications).
• Assess and report on VfM, in particular through comparison with some reasonably comparable options on the market, or if available in the future relevant benchmarks (as this will only apply if they are available in the future, this is not set out in our proposed requirements).
• As far as they are able, to consider whether an alternative scheme would offer lower administration charges and transaction costs and inform the pension provider if so. If the IGC is unsatisfied with the pension provider’s response, the IGC should also inform the relevant employer.
• Set out their overall assessment in their reports about whether the scheme or pathway investment provides value for money.
• Explain how they have assessed VfM in their reports and keep relevant evidence they relied upon for at least 6 years.

Review

The FCA has also published a review on how IGCs and GAAs ensure their member receive value for money. The review found that although a number of IGCs are working well to provide value for money for their members, it also found that:

• Some IGCs lack the necessary independence and were ineffective at challenging firms to ensure value for money for workplace pension scheme members;
• Those IGCs which maintained independence from the firms whose pension schemes they had responsibility for delivered better outcomes for pension scheme members;
• GAAs operated by third-party firms on behalf of pension providers were less effective at delivering meaningful improvements in value for money;
• Over the period of our review (2017-2019) we found there had been a small reduction in charges across all pension savings, although this cannot be directly linked to the work of IGCs and GAAs

As a result of the review, the FCA has sent feedback letters to firms to ensure they make improvements to the way they work with their IGC or GAA.

The Consultation Paper, which has a deadline of 24 September, includes proposals to specify a simple framework for the annual IGC and GAA value for money assessment process, including a definition of value for money and three key elements of value for IGCs to use when conducting their assessments.

IGCs currently oversee the value for money of workplace personal pensions provided by firms like life insurers and some self-invested personal pension (SIPP) operators. They provide independent oversight of workplace personal pensions in accumulation (building up pension savings) and of the investment pathway solutions that will have to be offered from 1 February 2021. IGCs act on behalf of consumers who are likely to be uninvolved or less engaged with their pension savings.

Click on the above link for further information.