TPR provides clarification on value for money framework proposals

The Pensions Regulator (TPR) has provided further clarification on the proposed value for money (VFM) framework, emphasising the need for schemes to deliver “real value” rather than focus purely on cost.

In a blog post, TPR chair, Sarah Smart, revealed that the proposals for a VfM framework have generated a "lot of interest and engagement from industry", providing further clarification on key elements of the proposed approach in light of this initial engagement.

In particular, Smart explained the initial focus on defaults, arguing that as the system is built on inertia, with no active choice made by most savers, it is "vital" that savers receive value for money by default.

However, Smart also confirmed that phase two will consider extending to self-select options, non-workplace pensions and defined contribution pensions in decumulation.

Smart also addressed the focus on data disclosures, explaining that the production of standardised, consistent, comparable data will allow schemes and regulators to effectively understand how they are performing relative to their competitors and the market as a whole.

"Using large amounts of data in pension schemes to guide performance isn’t a new concept and indeed has been part of defined benefit (DB) regulation for some time," she stated.

"What we want to hear in consultation responses is practical examples of how schemes currently use data to deliver value for savers and compare their performance."

More broadly, Smart said that the framework will be used to drive improvements across the whole market, warning that poorly performing schemes will have to either improve or get out of the market.

She stated: "We want to ensure all savers receive value for their money, it’s plain and simple That means schemes don’t just focus purely on cost but look to deliver real value.

“Trustees have a fiduciary duty to act in their members’ best interests. To try and make sure that every penny of savers’ hard-earned cash is working as best it can to give them a good retirement outcome. A duty to ensure that all savers receive value for their money.

“We want to make that easier for those governing schemes. To give them the tools they need to make good decisions, drive competition and raise standards across the whole market.

“We don’t pretend to have all the answers now – and in a number of areas of the consultation we propose options for how we may go forward.

“That is why I would encourage industry, pension schemes and providers, employers, consumer groups and others to engage with our consultation before it closes on 27 March 2023.”

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