FCA and TPR outline a framework for value for money in defined contribution pension schemes

DC savers can only maximise their retirement income if their scheme delivers value for money. For the regulators, this means well-run schemes delivering good investment performance that is not eroded by high costs and charges.

To allow good value schemes to compete, the FCA and TPR are proposing a common framework for disclosing information on the key elements which make up VFM: investment performance, scheme oversight - including data quality and communications, and costs and charges.

Sarah Pritchard, Executive Director for Markets at the FCA, said:

'Consumers work hard for their pensions savings and it’s important that schemes are really delivering good-value products.

'This issue is a complex one which impacts almost all pension savers so it’s important that we get it right. The proposals will help all those making decisions on behalf of consumers really challenge providers on value and allow better comparisons between products.'

David Fairs, TPR’s Executive Director for Regulatory Policy, Analysis and Advice, said:

'Delivering value for money in pensions is a key priority for TPR – all part of our work to put savers at the heart of what we do. Regulators, industry and others must be able to effectively assess value for money to ensure good pensions outcomes. The discussion paper sets out our ambitions for an industry-wide VFM assessment framework.

'DC savers rely on the pension system working as best as it can over the lifetime of their saving - every penny counts. That's why independent governance committees and trustees need a framework which provides a holistic assessment of what VFM means - beyond cost and charges - to allow them to hold their providers to account and deliver the best possible outcomes for savers.'

The common framework will also allow trustees and independent governance committees to compare their scheme’s costs and charges, investment performance and service standards with similar offerings from other providers.

Disclosures alone will not address the difficult issues surrounding VFM in pensions. Improving data disclosures will be a starting point and the regulators will continue to work with stakeholders to improve saver outcomes over the longer term.

The FCA and TPR will use the feedback received in further work towards creating a framework to assess VFM.

The FCA and TPR are inviting comments on the discussion paper by 10 December 2021 and will publish a feedback statement setting out next steps in 2022.

Notes to editors

1. The discussion paper builds on the joint pensions strategy published by the FCA and TPR in October 2018, which outlined how the regulators will work together to tackle the issues facing the sector over the next five to ten years. The joint strategy identified the lack of comparable information as a key factor behind the lack of effective competition and value for money in the pensions market.
2. The FCA previously published a Consultation Paper[1] in June 2020 that proposed a more detailed framework for Independent Governance Committees to consider value for money and asked whether providers should have a direct responsibility for value for money. The FCA will be publishing a Policy Statement drawing on feedback received in that consultation in October 2021.
3. Read DP21/3: Driving Value for Money in Defined Contribution Pensions[2].
4. The FCA and TPR’s October 2018 joint pensions strategy[3].
5. The FCA’s Business Plan 2021/22[4] outlined wholesale market priorities for the year ahead, including ensuring people can choose appropriate pension products that offer good value.
6. TPR’s Corporate Strategy[5] includes a strategic goal of ensuring savers get good value for money.
7. This discussion paper is focused primarily on assessing VFM in pensions in accumulation. The FCA intends to consider the assessment of VFM in pensions in decumulation after it has conducted a post-implementation review of investment pathways.
8. Responsibility for regulating pensions in the UK is split between the FCA and TPR. The FCA regulates the provider of contract-based defined contribution schemes, with 30.7 million members and £728 billion assets in accumulation, of which approximately 12 million members and £260 billion assets are in workplace pension schemes. TPR regulates trust-based occupational pension schemes which includes 9.9 million members of defined benefit schemes with £1,700 billion in assets, and 18.2 million members of trust-based defined contribution schemes (including master trusts), with £218 billion in assets.
9. Find out more about the FCA[6].
10. The Pensions Regulator is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).