The UK financial regulator should reconsider its intention to compare pensions schemes and giving them ratings as a way of increasing the value for money that consumers get in the defined contribution (DC) pensions market, the Investment Association (IA) warned.
Responding to Financial Conduct Authority (FCA) consultation on value for money in the DC market, the IA said there was a danger that comparisons between schemes that had different objectives could be misleading.
“The first point of consideration on value assessment should be whether the scheme has delivered against the specific objectives set out for its own default strategy within the context of its own fees and other considerations specific to the scheme, not the comparison with other schemes which may have different objectives,” said Imran Razvi, a senior policy adviser at the IA, in the trade body’s official response.
The IA urged the FCA to consider lessons on value assessment from other parts of the market, notably the Assessment of Value (AoV) regime for authorised investment funds five years ago and the much more recent Consumer Duty Fair Value.
These provide “valuable lessons” which have potentially important ramifications for value for money in the DC pensions market, the IA said.
“The funds industry sees AoV as particularly positive in its impact on governance and hence behaviours in an environment where reports are not widely read,” said Razvi in the IA response.
Jonathan Lipkin, director of policy, strategy and innovation at the Investment Association, said: “Ensuring the UK pensions system is fit for purpose is crucial for the millions of households that will rely on retirement income in later life. For too long, the DC pensions market has been heavily focused on price rather than investment outcomes, with low cost often conflated with value for money. The recognition by regulators of the need for this to change – clearly signalled again in the FCA consultation – is very welcome.”
Transparency of investment performance and process is a key part of assessing value and Lipkin said the IA is supportive of more investment-focused metrics.
But he drew caution about the proposed cross-scheme comparisons and a red-amber-green rating process being used in combination with a ban on new business.
“Getting the framework right will take more consideration, with the starting point being whether a scheme has delivered against its own stated objective,” said Lipkin.
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