VfM: Regulators say nothing is set in stone as industry calls for less onerous disclosures
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Pensions regulators have sought to alleviate concerns about a proposed new value for money framework for defined contribution schemes, as industry bodies have criticised some of the proposals as binary and too burdensome. Industry also wants the requirements to apply to retail as well as workplace pension providers.
A consultation by the Financial Conduct Authority on a new value for money framework closes on 17 October. Though not a joint consultation, it is supported by the Pensions Regulator and the Department for Work and Pensions, which will bring in similar rules in the forthcoming pension schemes bill.
Ahead of the FCA consultation closing, Nike Trost, the FCA’s head of asset management and pensions policy, and Nina Blackett, interim executive director of strategy, policy and analysis at TPR, answered some of the industry’s questions during a panel session at the Pensions and Lifetime Savings Association’s annual conference on Wednesday.
Several industry bodies had raised concerns with some of the details in the consultation.
Joe Dabrowski, the Pensions and Lifetime Savings Association’s deputy director of policy, said it was complex and, “at this stage in its development, the level of ambition and scope of the proposed framework risks creating some unintended issues”.
He called for the overall level of disclosure to be reduced, removing the asset allocation metrics, “which are not clearly linked to value”, along with requesting “a rationalisation of service metrics”.
The PLSA wants to see data disclosures being conducted “at least initially, on a private basis, so that industry and regulators can assess which data points are useful, comparable and fair, and which are not”.
Pension providers and schemes have previously shown some resistance to being benchmarked when they responded to a discussion paper from 2021.
The PLSA was also critical of “the sheer number of data points to compare” to produce a rating, saying this, together with “the number of areas which will require additional contextualisation”, could lead to “a wide range of scheme performance masked within a green rating, as well as creating a significant regulatory burden”.
The PLSA also echoed concerns by master trust the People’s Pension voiced in July that the retail sector is not in scope for the proposed rules, as did the Society of Pension Professionals.
'Room for improvement' instead of amber?
The SPP said the proposed amber rating should be changed, “so that instead of being a broadly negative assessment, it is instead considered ‘VFM with room for improvement’,” calling the current version binary in terms of whether a scheme does or does not provide value.
SPP president Sophia Singleton agreed with the PLSA on data: “We are concerned about the volume of data that the proposed framework will require providers to collect and communicate, which in some cases appears disproportionate.”
The Pensions Management Institute too is concerned that the disclosures are creating a burden, requiring too much detail in some places.
Tim Box, who chairs the PMI’s Policy and Public Affairs Committee, said: “If the VFM framework is to succeed, it is vital that providers are not hamstrung with requirements that are overly complicated and onerous.”
Tim Box, who chairs the PMI’s Policy and Public Affairs Committee, said: “If the VFM framework is to succeed, it is vital that providers are not hamstrung with requirements that are overly complicated and onerous.”
On the other hand, the institute said some aspects are simplistic. Echoing the concerns of the SPP, Box called the proposed red, amber and green assessment “too blunt and severe”.
‘Nothing is set in stone’: Regulators interested in suggestions
Regulators responded to many of these concerns on Wednesday. Trost called the consultation “the beginning of a process of refining what we will do with it”.
Based on this, she defended the extent of the consultation, which includes 47 questions: “We really need to put that detail into the public domain to have a discussion about what are actually the right metrics that will drive value.”
As to why the consultation focuses on workplace pensions only is that this is where the largest number of savers are, she said, adding: “Clearly that question has been raised so that’s something that we need to evolve."
The FCA has also already had discussions on forward-looking metrics, which are not included in the consultation but could play a role in not discouraging long-term, illiquid investments, and on what action is taken if a scheme does not provide value.
Blackett agreed regulators are interested to hear what metrics would disclose value best, adding: “This is an ongoing dialogue, nothing is set in stone.”
This includes the red, amber, green model, with Trost and Blackett noting that regulators are looking for something that is simple but not necessarily limited to three.
However, on the extent of disclosures, Blackett said there needs to be transparency to have a basis for dialogue and develop value for savers.
Industry will also be worried about any additional costs the new requirements could create costs. Trost said the FCA surveyed firms in the run-up to the consultation, with the impact depending on their systems and ability to produce numbers easily, as well as how much backward-looking information mustbe provided.
“There are trade-offs,” she said. “That is part of purpose of the consultation, it allows us to flush out those things.”
Blackett could not yet give details about whether there would be a similar cost-benefit analysis for the trust-based space, but said it was part of the ongoing development. “This is early stages,” she remarked.
What are your thoughts on the VfM proposals?
