FCA consultation on the Value for Money Framework - Which? response

We welcome the FCA’s proposals for a Value for Money framework for workplace DC pension schemes. Building on previous proposals for trust-based workplace schemes, these proposals for FCA-regulated contract-based schemes will help ensure alignment in measuring value across the DC workplace pensions market. Requiring schemes to disclose metrics on their investment performance, costs and charges and quality of services will enable more reliable comparisons on the performance of pension schemes. It will also place external pressures on underperforming schemes to improve their performance, or consider consolidating or exiting the market if they are constantly failing to offer their members good value for money. In these cases, transferring savers to a different arrangement or provider that is more likely to deliver consistent value is in the best interests of pension savers.

We agree with the proposed metrics for investment performance and costs and charges, but have some concerns regarding the proposed metrics for measuring service quality. We agree with the five proposed indicators, which together provide a good starting point in setting out an approach for schemes that focuses on saver outcomes as indicators of good value. However, in respect of the metrics proposed, we note that:
- For the proposed metrics for measuring indicator 1, if a provider is failing to consistently execute prompt, secure and accurate financial transactions, then this should call for immediate regulatory intervention as it would strongly suggest non-compliance with regulatory standards. The value framework should be seeking to hold schemes to higher standards and to drive outcomes that cannot just be achieved through regulatory compliance.
- The proposed metrics for measuring indicators 3, 4 and 5 are largely focused on individuals’ engagement with their scheme, but this is dependent on the cohort a scheme has. The FCA does mention that for more comparable data on service quality, IGCs can choose comparator arrangements where individual saver characteristics are broadly comparable. Given the impact cohort and membership differences could have on service metrics comparisons, the FCA may want to consider bringing this out more in their guidance to IGC’s when choosing comparator arrangements.

We agree with the proposed assessment process and actions for arrangements offering poor value, however it is crucial that the FCA has oversight of the assessments made under the framework, and ensures that the RAG determinations IGC’s are giving to firms are accurate and fair. While it will be for the IGC to determine if a difference is sufficiently material to factor in an assessment outcome, we think the FCA should be looking at IGC’s performance across the framework, and provide support to them in making this material assessment.

We strongly support extending the value for money framework in the future to include DC pensions in decumulation. Savers often engage the most with their provider when drawing from their pension savings, so good customer service, quality scheme administration and clarity on costs and charges is especially important in decumulation. Pension schemes should be required to describe how the decumulation products and services they offer provide value and meet the needs of their customers. We would also welcome future iterations of pensions dashboards to include some.

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