Industry experts have expressed concerns that a focus on cost in the pension sector in regard to the value for money (VfM) framework could undermine long-term value for members.

Speaking at a Work and Pensions Committee (WPC) meeting, the Association of British Insurers director of policy, long-term savings, health and protection, Yvonne Braun, said that there was a “huge focus” in term of consolidation with keeping things as a low cost as possible and using that as the "yardstick" when choosing a pension scheme.

She highlighted the risks of prioritising cost over long-term value, calling it a “huge problem” for this industry because it is only the supply side, but argued changes are needed on the demand side.

“We hope that the VfM reforms will drive some of that because it would be much easier to compare schemes, and also, it will focus on long-term value rather than merely on cost, which is important.”

Pension and Lifetime Savings Association deputy director, Joe Dabrowski, added that from the Pension Schemes Bill he expects the VfM regime and a response from the Mansion House consultations of the introduction of scale tests in the master trust space, which he said the industry should hear about the detail of in the “next couple of weeks”.

He suggested these changes would accelerate the consolidation agenda but warned that VfM-driven consolidation should not stifle innovation or competition in the market.

“We don't want to end up in a market that is very narrow, and then you lose some of that competitive nature that you see in other sectors of the economy,” Dabrowski said.

Pensions Policy Institute director, Chris Curry, echoed concerns about consolidation, emphasising that it should not be equated with achieving scale.

He pointed out that the UK pension market remains fragmented, with different types of schemes - such as trust-based and contracted-out defined contribution (DC) pensions - that need to be addressed separately.

“Scale of itself doesn't necessarily guarantee better returns for members, and there are plenty of smaller master trusts, for example, delivering good returns and own trust DC schemes also delivering good returns,” he said.

He also warned that the industry should be “careful not to just assume that consolidation is automatically scale”.

“Consolidation is important, but I think the focus for the government at the moment is much more on scale, rather than necessarily just consolidation,” he said.

“I think there's always a tendency for whatever is measured, gets the attention, and I think we have to be very careful that we don't just set up something which, on the face of it, is quite onerous."

Curry added that it was important that the framework encourages change behaviours and more transparency.

“Transparency is really important in what you do with the VfM framework, because it's only really helpful if people can actually make any decisions or take action based on VfM,” he said.

The panel also discussed the potential of government mandation of the Mansion House Accords, which saw seventeen of the largest UK workplace pension providers express their intent to invest at least 10 per cent of their DC default funds in private markets by 2030, with 5 per cent of the total allocated to the UK.

The accords were announced yesterday, but concerns have already presented themselves about the potential of mandation of the accords, despite Pensions Minister, Torsten Bell, refusing to be drawn into speculation over whether mandation could be considered if the signatories do not meet their commitments.

Braun said that mandatory measures were "not desirable and instead argued that creating attractive investment opportunities and providing incentives would be more effective in fostering growth in UK private markets.

In particular, the panel all suggested that a pipeline of appropriate assets for pension funds to invest in was needed to prevent over competition between funds for UK investments and value for money.

Meanwhile, Curry stated that mandation could have “unintended consequences”, while Croft said that the mandation of the accords could risk member outcomes.

---