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that scale drives better outcomes in pension provision. More assets under management, according to global research, are associated with lower administration costs and higher investment returns. Larger providers can more easily drive favourable terms from their supply chain and better support the
pensions are essentially an investment product. In a market where the cost of administration is strongly determined by legal requirements and where price competition is fierce, investment budgets are the thing that often gets squeezed. A new value for money framework is set to change that. The exact details of the framework will be thrashed out in an imminent consultation, but the aim is two-fold. First, to hold providers to account for the quality of their product. Second, the Government wants to shift the basis of competition in the workplace pension market away from cost and towards value. By forcing providers to be rated on a consistent basis on the value their funds deliver, the Government and the regulators aim to shift the way the workplace pensions market assesses competing pension products to drive better overall outcomes for savers. Driving investment in the UK The aim here isn’t just better pension schemes, it’s better pension schemes that have the capacity and incentives to invest more in the UK economy. For most of the last decade, Governments have encouraged UK pension schemes to invest more in domestic infrastructure and growth businesses. The UK is good at generating innovative tech and life sciences start-ups and good at exporting them to the United States, where they more easily access capital. The focus now is keeping growth at home, ensuring UK-based investment supports UK-based innovation. Will this work? The volume of change facing the pensions sector between now and 2030 is colossal. The ambition is clear: bigger schemes, better governance and more focus on investment quality. Coupled with a strong move from the Government to invest more in private markets, especially domestically, this could be positive for both pension savers and the UK economy. At least, that’s the intention. The challenge, as ever, is execution. Providers face a heavy workload and tight timelines. The Government will need to communicate its intentions clearly and work with the industry to make these plans possible. Pensions may not sound fast paced, but they are, and they’re not slowing down any time soon.
investment professionals need to enable higher quality investment decision-making.
The ’scale test’ will require multi- employer schemes to be on a path to £25 billion in a single fund by 2030. Providers with £10 billion in 2030 and a credible path to £25 billion by 2035 will also be able to remain in the AE market. Internal consolidation of many hundreds of legacy default funds is also firmly on the agenda. Scale isn’t just about the volume of assets under management. It’s about the efficiency and effectiveness with which that money is managed. The Government thinks forcing internal consolidation of funds within pension providers, as well as forcing consolidation of pension providers, is a path to more efficient, and subsequently, better VFM provision. VFM – a new benchmark From 2028, the regulators the Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) will rate pension schemes on the VFM they offer. This matters because savers don’t choose their provider; employers do. Competition in the workplace pension market typically turns on price, brand, administration quality and wider propositional factors. Investment fund quality is a historically weaker competitive factor, which is surprising given DC “By forcing providers to be rated on a consistent basis on the value their funds deliver, the Government and the regulators aim to shift the way the workplace pensions market assesses competing pension products to drive better overall outcomes for savers”
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