By The Pensions Regulator & Financial Conduct Authority

This discussion paper was published jointly by the UK’s Financial Conduct Authority and The Pensions Regulator.

A focus on Value for Money (VFM) is a key part of ensuring defined contribution (DC) pensions maximise the income savers have at retirement.

In this discussion paper, we invite views on developing a holistic framework and related metrics to assess VFM in all FCA and TPR regulated DC pension schemes (workplace and non-workplace). At this stage, we are focusing on VFM in accumulation.

We aim to promote consistent assessments on VFM, focusing on metrics for the key drivers of VFM to enable meaningful comparisons between schemes.

We will use the feedback to this paper to decide how we can achieve this.

1. Since automatic enrolment (AE) was introduced in 2012, we have seen a dramatic shift in the pensions landscape. Historically, most pension savers had been in defined benefit (DB) schemes, which promised a specific level of income at retirement. Now, 15 times as many private sector workplace savers are accumulating in DC schemes rather than DB schemes.1

2. In DC schemes, retirement income is not guaranteed. It depends on the level of savers’ contributions and the performance of investments. DC savers can only maximise their future retirement income, if the scheme they contribute to delivers ‘value for money’.

3. By ‘value for money’ we mean that savers’ contributions are being well invested and their savings are not eroded by high costs and charges. Other factors also contribute to whether a saver achieves good retirement outcomes and so these should also be included in the concept of ‘value for money’. For example, good customer service to help savers make the right decisions at the right time may make a real difference to how much they contribute and engage with their retirement needs. Good scheme governance also makes a meaningful difference to long-term outcomes.

Source: The Pensions Regulator