FCA hones in on value for money as new rules come into force

The Financial Conduct Authority (FCA) has published a policy statement on new rules, which come into force from today (4 October 2021), for assessing value for money (VFM) in workplace pension schemes and pathway investments.

The rules will require Independent Governance Committees (IGCs) to assess and report on VFM, particularly through comparison with other market options, taking account of three key elements: costs and charges, investment performance, and services provided.

They will also be required to consider, as far as they are able to, whether an alternative scheme or schemes would offer better VFM and inform the pension provider or the pathway investment provider if so.

Under the requirements, firms and IGCs have until the end of September to publish their next report.

The changes aim to better equip IGCs to make informed challenges to providers and to promote greater transparency in order to help employers, advisers and employees bring competitive pressures on providers to provide VFM.

The FCA first consulted on the requirement in February 2019 and, following an industry consultation, confirmed final rules in February 2020, which included diluted plans for pension schemes to provide fee information on all funds, in response to concerns over the implementation process.

The regulator also provided further clarification on its expectations on requirements for workplace personal pension scheme providers to publish costs and charges data in June 2021.

Commenting on the policy statement, AJ Bell head of retirement policy, Tom Selby, said that the three VFM concepts outlined by the regulator are the "right ones", noting that key considerations like environmental, social and governance factors are also "likely to be captured within these".

He continued: “Automatic enrolment is the primary context for this renewed focus, with millions of people thrust into retirement saving for the first time and the majority contributing through inertia rather than by making an active choice.

“It is therefore crucial policymakers are firmly focused on ensuring these members continue to receive value-for-money from their scheme. While the 0.75 per cent charge cap is an essential protection, increasing scale should mean providers costs drop significantly over time.

“As this happens, it is vital the benefits should be passed directly to savers rather than being swallowed up elsewhere, as we know even small differences in costs and charges can add tens of thousands of pounds to your final retirement pot."

Selby also warned, however, that there is a "danger" that the desire from the government and regulators to drive investments into illiquid assets and boost the UK economy could divert attention from ensuring more investors benefit from lower charges.

“Indeed, a recent Productive Finance Group Working Group report suggested there had been ‘excessive’ focus on costs and charges in workplace DC pensions. This feels at odds with the direction of policy in the last decade and risks leading to hubris in the market," he continued.

“Ultimately costs and contributions are the two key elements retirement savers have total control over, and therefore ensuring costs are as low as possible must remain a priority.”

    Share Story:

Recent Stories


Making pension engagement enjoyable through technology
Laura Blows speaks to Nick Hall, business development director and Chartered Financial Planner at UK-based Wealth Wizards about the opportunities that technology provides for increasing people’s engagement with pensions and increasing their retirement wealth. Please click here for an edited write-up of the video

ESG & DC – creating the right tools
In the latest of our series of Pensions Age video interviews Francesca Fabrizi, Editor in Chief of Pensions Age is joined by Manuela Sperandeo, Head of Sustainable Indexing EMEA, BlackRock and Mark Guirey, Executive Director, Asset Owner and Consultant Coverage - MSCI to discuss some key trends of ESG investing among UK pension funds today. Please click here for an edited write-up of the video

Savings and finance at retirement
Laura Blows is joined by Claire Felgate, Head of Global Consultant Relations, UK, at BlackRock, to discuss savings and finance at retirement. Please click here for an edited write-up of the video

Global equities and transition investing
Pensions Age editor, Laura Blows speaks to Royal London Asset Management equity investment director, Jonathan Price, about transitioning to sustainable investments within global equities
Cost transparency
Pensions Age editor, Laura Blows, discusses investment cost transparency and savings with Aon’s Neil Smith and Chris Hawksworth. Please click here for an edited write-up of the video

Advertisement Advertisement Advertisement