All DC pensions should be included in proposed value for money framework, urges B&CE following new PPI report

B&CE, provider of The People’s Pension1, has today backed plans for new value for money regulations to be applied to the retail market as well as workplace pensions, following new research from The Pensions Policy Institute (PPI)2.

The PPI’s latest report, What is the impact on member outcomes of different non-capped charging structures?3, looks at the effect that different charging structures could have on pension savers. The research concludes that while average pension savers are neither engaged or motivated by what they are charged, there is a charging gap between members of schemes that are subject to the charge cap and those who are customers of uncapped schemes.

B&CE believes that the intention from The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA), for a new framework to assess value in both workplace and retail pensions, is the right way forward. The leading workplace pension provider believes savers should have a clear idea about how different pension schemes and products compare and, while charges are very important, this should be broader than charges.

Phil Brown, director of policy and external affairs at B&CE, provider of The People’s Pension, said:

“This research shows how significantly charges can impact retirement incomes. With charges generally lower in workplace pensions than in retail, for many people thinking about transferring out of lower cost workplace pensions, it would be better to stay put.

“But value for money is about more than just charges. The FCA and TPR are right to propose a value for money framework that covers all of DC pensions, as savers should be able to examine the value for money offered by both workplace and retail pensions. It will be tough to fine tune, but it will provide real transparency to both professionals and savers.”

ENDS

Demonstrating value for money drives better retirement outcomes

The government is proposing new legislation to come into force on 1 October 2021 which will require trustees of defined contribution (DC) schemes with assets of less than £100m to carry out an annual value for money member assessment.

In this assessment – which must be published – the trustees will need to compare their scheme’s charges and default investment options with 3 larger DC schemes, which benefit from economies of scale.

Thoughts of the industry

Value for money – the trustees’ conundrum was the topic discussed at the Pensions Management Institute Symposium, where myself, Gary Davies from DLA Piper and Richard Birkin from ISIO joined Joe Craig of Quietroom to look at the issues facing trustees and how new legislation will affect schemes going forward.

What became clear from the discussions and the feedback we received during the webinar was when trustees demonstrate value for money, it actually drives up member savings outcomes as they approach retirement.

For trustees, the value for money assessment then becomes a super tool to prioritise planning and improvements to the scheme. Alternatively, they may decide to wind it up and move it to a master trust, such as The People’s Pension, which has the scale needed to meet future members’ needs.

Getting our ducks in a row

What I personally got out of the session was that it was great to discuss things with other industry professionals and realise we’re all very much on the same page on what needs to be done, and the choices trustees and scheme sponsors have.

We’re all driven to see members achieve better retirement outcomes, where their savings aren’t eaten away at by excessive charges or where weak scheme governance leaves them at risk.

Of course, charges and governance are just 2 elements that go into establishing value for money. Product functionality, default investment fund, ESG investing, service and administration and member communication and support all have to be taken into consideration too.

When looking at the full scope of what value for money actually means, it’s easy to see how smaller schemes might struggle to be competitive against larger master trusts.

Thoughts of the industry

If trustees do decide to wind up their current scheme, it’ll be very important to work together with the scheme sponsor and their advisers to create a suitable project plan. A robust provider selection process, which asks the right questions, is key in securing value for members and driving better retirement outcomes.

The extensive research carried out by The Pensions Regulator and the Department for Work and Pensions has very much highlighted the importance of improving value for pension scheme members. It was a privilege to be part of the panel debate on such a key topic, expertly chaired by Joe, and on which Dave and Richard provided invaluable insight from the perspectives of The People’s Pension and ISIO. It was pleasing to see how our views were aligned on the key issues for members and very much underlined the importance of preparation and collaboration across the industry.

The extensive research carried out by The Pensions Regulator and the Department for Work and Pensions has very much highlighted the importance of improving value for pension scheme members. It was a privilege to be part of the panel debate on such a key topic, expertly chaired by Joe, and on which Dave and Richard provided invaluable insight from the perspectives of The People’s Pension and ISIO. It was pleasing to see how our views were aligned on the key issues for members and very much underlined the importance of preparation and collaboration across the industry.

Gary Davies – DLA Piper

It’s a job for us all

Even though the new legislation focusses on schemes with assets of less than £100m, every scheme should be looking at value for money. As an authorised master trust, we must continually evaluate how we create value for our members – details of which you can find in our annual report and accounts.

Whether the scope of the legislation increases to cover larger schemes remains to be seen, but from the discussions we had at the Symposium, it’s clear that everyone in the industry is committed to delivering better retirement outcomes for savers.

Relive the action

Visit the BrightTalk website to watch a recording of our Value for money – trustees’ conundrum webinar.