DWP unveils proposed Value for Money Framework

The Department for Work and Pensions (DWP) has launched a consultation on plans for a new Value for Money (VFM) framework, including proposals around the use of this data in comparisons and assessments of value for money.

The framework, which was announced as part of a raft of defined contribution (DC) measures, was developed in partnership with The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) and outlines how schemes will be expected to provide savers with better value from their investments and a quality level of service.

The policy consultation proposes key metrics, standards and data disclosures for DC pension schemes under this proposed framework, as well as proposals for the use of this data in comparisons and assessments of value for money.

The framework is intended to provide a standardised understanding of value via clear metrics, allowing more transparent comparisons to be made between pension schemes and driving more effective competition.

However, the DWP acknowledged that this is a "complex area" with mixed views on certain areas of the framework, with the consultation therefore looking to "move this debate forward".

Commenting in the foreword of the report, Secretary of State for the DWP, Mel Stride, and Pensions Minister, Laura Trott, stated: "Ensuring that pension schemes deliver value for money doesn’t just mean low costs and charges. It also means that savers get good value from their investments and receive a quality level of service.

"Improving the availability and transparency of information and data on these key factors will enable schemes to compare and improve the overall value for money they provide, driving competition across the market.

"In addition, it can improve performance and help drive consolidation by removing underperforming schemes from the market.

"We do not believe that requirements to disclose and assess additional information should be unduly burdensome. We want to ensure that any regulatory requirements of a VFM framework are proportionate to the benefits that increased value for money brings savers."

TPR and the FCA previously issued a joint discussion paper on developing the framework for measuring VFM in 2021, also highlighting VFM as a joint workstream for TPR and the FCA in their more recent joint regulatory strategy.

Industry experts have welcomed the consultation, with People's Partnership director of policy, Phil Brown, highlighting VFM as "essential to ensure that people have a complete and clear picture when consolidating their savings, allowing them to make the right financial decision for their future".

He continued: “We’re encouraged by the ambition of these proposed measures and welcome the commitment to implementing VFM metrics across retail and occupational schemes.

"To ensure savers can easily compare their provider’s performance, making pension companies prominently display their value for money data on pension dashboards would be the most sensible future approach.

“This framework has the potential to reshape the workplace pensions market, and in time, non-workplace pensions as well."

However, Brown clarified that, given the scope of the government’s ambitions, it’s important that they get the value for money metrics right by measuring the value added by pension schemes and recognising the different challenges faced by schemes.

Adding to this, Quietroom director, Simon Grover, described the DWP's consultation as "important" in making sure people's hard-earned pension saving is working for them, suggesting that how information is presented will be "key" to the success of the reporting requirements.

"Standardised templates and reporting will certainly help with comparisons, and this is something that came through strongly in the work we did on the simplified benefit statements," he stated.

"But we should also use this as an opportunity to rethink how we communicate and engage with members so people really understand the value of their pensions. Metrics and commentary will get us so far, but this is an opportunity to rethink how we communicate value to savers."

Pensions and Lifetime Savings Association (PLSA) head of DC, master trusts and lifetime saving, Alyshia Harrington-Clark, also welcomed the consultation, highlighting the inclusion of legacy products as a particularly positive sign.

"In a regime where most workers are defaulted into saving, it is paramount they can be confident of receiving good value, irrespective of the type of scheme they find themselves in," she stated.

"With this in mind, we are pleased to see the scope includes ensuring legacy products also provide value for money.

“We will continue to work with government in creating a framework which considers different aspects of value, including net investment performance, costs, and quality of service, which is both workable for schemes, enables a meaningful assessment of value for those overseeing them, and avoids any adverse consequences, such as providers ‘herding’ towards an average rather than striving to outperform."

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