PENSIONS
Workplace pensions to get three value-for-money tests
Henry Tapper, chief executive officer for AgeWage discusses the consultation which considered key metrics, standards and data disclosures for defined contribution schemes under the proposed value for money (VFM) framework T he government has consulted on a radical proposal to certify VFM using three tests. The tests would be on: Authority are understood to have provided input in what has been described as a holistic document. If the proposals make it onto the
charge paid for investment management and scoring value against the service cost. The government thinks this will put an end to schemes ‘marking their own homework’, but critics regard the proposals as unworkable. The consultation offers an alternative way for VFM to be assessed, using a step-by-step process with the steps being determined by pension providers. This is likely to find approval from pension providers but isn’t considered that different from the plethora of VFM assessment systems which have been created so far. The DWP is suggesting all the assessments made are posted, either on a government website or on a privately run comparison site. It’s difficult to see how this would be of any practical purpose without standardisation and DWP certification. The consultation was open until 27 March and consisted of 30 questions. With a general election expected soon, some have suggested there’s insufficient Parliamentary time for the results of the consultation to be enacted in this term. It’s thought there’s bi-partite support for the proposals and that (as with automatic enrolment), the work of one government may be enacted by another. Whatever its outcome, the consultation has already caused many occupational pension schemes and GPPs to reconsider how they see themselves. As they grow with the ongoing success of automatic enrolment, this looks a welcome development. n
l the returns received l the charges paid
statute book, it will mean employers can assess their scheme’s VFM against others. This will enable them to make informed decisions on whether to maintain the current arrangement or move to a scheme with the potential to give better member outcomes. Although the consultation has generally been well received, the pensions industry has voiced concerns over the detailed measures suggested to assess performance. Nico Aspinall, a former chief information officer to the People’s Pension estimates that if the paper was implemented as proposed, schemes would be required to assess 3,200 data points. This wouldn’t only be expensive to report on but would make comparisons extremely hard. The Pensions and Lifetime Savings Association has called a public meeting with the chair of TPR, Sarah Smart, to look at simplifying the process. Another area of contention is the measurement of the quality of service schemes receive. In the past, this has been determined by qualitative assessments by trustees and the independent governance committees set up for GPPs. The consultation proposes that more quantitative measures are adopted, using the take up of expression of wish forms and employee satisfaction ratings. The cost of the service is established by splitting that part of the annual management
l the quality of service given to members. Each test will give a score of red, amber or green. If workplace pensions score red, they’ll be expected to close, and their asset be consolidated by another scheme. Amber schemes will be expected to rectify failings and only schemes which consistently score green will escape the attention of their regulator. The Department for Work and Pensions (DWP) has confirmed that it considers most workplace pensions with less than £100 million of member assets inefficient. Economies of scale in administration, governance and especially investment are seen to increase as schemes manage more than £10 billion, and several master trusts including Nest, Legal & General and People’s Pension are now at, or close to, £20 billion. Schemes of this size can invest more ambitiously, accessing private markets which offer better long-term returns. So, what could the proposals mean? The proposals are also considered radical as they’ll use the same method of measurement whether the scheme is trust- based or written under contract as a group personal pension (GPP). While the DWP oversees the consultation, The Pensions Regulator (TPR) and the Financial Conduct
| Professional in Payroll, Pensions and Reward | April 2023 | Issue 89 48
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