ACA calls for focus on DC governance over charge structures

The Association of Consulting Actuaries (ACA) has called for a “sharper focus” on value for pension savers, not just costs, warning that the charge cap is a "blunt tool" that will not deliver value for members in isolation.

The association emphasised that whilst it “wholly supports” pension savers receiving good value, more attention must be given to improving defined contribution (DC) governance standards, focusing on value rather than just cost.

The call forms part of the association's response to the government's Review of the Default Fund Charge Cap and Standardised Cost Disclosure: Call for Evidence, and the Financial Conduct Authority's (FCA's) consultation, Driving Value for Money in Pensions.

ACA DC committee chair, Tess Page, highlighted that the two consultations cover overlapping issues across different types of DC pension scheme, reflecting the differing regulatory regimes in place.

She clarified, however, that trust-based and contract-based plans must be “equally capable” of delivering value for members and that greater consistency is needed in the approach to value for members assessments “across the board” to ensure all members benefit “regardless of their scheme design”.

Page continued: “At this stage, we do not see sufficient evidence to support better member outcomes being achieved through a charge cap on transaction costs.

“Focusing governance time and energy on improving the quality of DC arrangements more broadly must be prioritised.

“Linked to this point, whilst investment returns are one aspect of performance and can contribute to delivering the 'quality' elements required for good value schemes, it is important to consider risk-adjusted outcomes and other performance factors, notably administration and the member experience.”

Furthermore, she stated that preventing the erosion of small pots can be "more efficiently achieved" through pot consolidation, rather than regulating on charging structures, emphasising that the market is evolving as master trusts and other consolidation options “emerge and mature”.

“Consolidation can be a very positive step to drive value, provided it is underpinned by strong governance and a ‘member first’ philosophy,” she concluded.

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