Value for Money framework can drive real engagement for pension members

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, comments on the Pensions Regulator, and DWP consultation, showing Value for Money framework can drive real engagement for pension members.

Key points from publication:
    • The consultation looks at metrics to be used in a framework measuring whether a scheme delivers value for money to its members.
    • Issues including costs, investment performance, communications and administration are considered.
    • Schemes deemed to be poor value for money could be forced to consolidate if they don’t improve.
    • The consultation runs until 27 March 2023.
    • Value can shift depending on membership and where they are in their retirement journey.
Helen Morrissey says:

“Determining whether a scheme delivers value for money is tricky but, if we can get it right, such a framework can be a powerful force in improving standards across the board, with laggards forced to either change or close.

“This increased consolidation could also bring further improvements for members in terms of cost efficiencies and the potential to invest in more illiquid assets that smaller schemes otherwise would not be able to do.

“If done right, it will really help employers compare the service providers offer and will enable providers to see where their offerings stand up well and which areas need more work.

“There’s a balance to be struck – make the framework too rigid and you veer into a box-ticking exercise that risks stifling innovation, while keeping it too broad means schemes may not be sufficiently held to account. 

“There are challenges though – value for money is a notoriously hard concept to define. It’s a huge positive that the conversation recognises that cost is just one aspect of value for money – we need to look at outcomes too.

“This framework can work well with the incoming Consumer Duty in helping firms drive good outcomes for members and help people really begin to engage with their pension planning.

“As it currently stands, many members have little to do with their pensions until they come close to retirement and then they need to make important decisions very quickly. Driving engagement earlier in the process has the potential to really boost people’s retirements.

“This is where focus on areas such as communications is vital. It shouldn’t be enough for a provider to say they issue certain communications to be deemed as offering value – that is not enough to define a good outcome.

“More work needs to be done on how they have been received. For instance, has it prompted someone to log into their pension account, revisit their contributions or fill out their expression of wish form? What happens if someone receives a communication saying their scheme offers poor value for money – might this prompt them to leave the scheme?

“These are all actions that stand to make an important impact on someone’s retirement outcomes and further focus in them should be welcomed.”

 

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay