DWP consultation on Value for Money: A framework on metrics, standards, and disclosures - Which? response

Summary:

• Which? supports the introduction of standardised metrics for assessing value for money across defined-contribution (DC) pensions. We welcome the Government’s consultation on its proposed framework for assessing value for money in DC pension schemes. Requiring schemes to publicly disclose metrics on their investment performance, costs and charges and service standards will enable more reliable comparisons between schemes, and place external pressures on underperforming schemes to improve. The DWP should extend the framework in the future to include DC pensions in decumulation.
• We support proposals requiring schemes to disclose data on multiple investment performance metrics. While net investment returns are a key determinant of value for money, further metrics are needed for regulators, employers and third parties to produce rounded, accurate assessments of a scheme’s investment performance. Moreover, we welcome separate standardised metrics for assessing the costs and charges associated with pension schemes.
• Some of the proposed metrics for assessing quality of services are merely minimum regulatory standards that all schemes should be meeting. These proposed service standards metrics do not adequately measure whether a scheme is delivering good value for money to their members. The number and types of complaints about a scheme to the Financial Ombudsman Service or Pensions Ombudsman is one way of better understanding the standard of services offered by schemes to their members.
• Regulators should collate and publish value for money framework data. This will allow pension schemes and third parties to more easily find and make use of this data to support their own value for money assessments and comparisons. Regulators would also have better visibility over the data and could therefore more easily identify underperforming firms and non-compliance.
• We agree The Pensions Regulator (TPR) should have new powers to enforce wind up and consolidation where a scheme is consistently underperforming. Given the risk that consistently underperforming schemes could remain in the market and continue offering poor value to consumers, we agree that TPR should have new powers to enforce wind up and consolidation, and transfer members to other schemes that provide better value for money.