Pensions schemes will be required to disclose investment performance, net of all costs, as part of the new value for money framework.
The Value for Money consultation paper published by the government today (January 30) proposes schemes should disclose investment returns over three, five, 10 and 15 years, if available.
This is because it may be difficult for some providers with vertically integrated business models or with single or combination charging structures to retrospectively determine the split between investment charges and administration charges for longer periods going back.
The government said the proposals would encourage greater transparency and standardisation of reporting across the DC pension market, allowing trustees to make more informed decisions and employers to better compare the value and performance between schemes when choosing where to automatically enrol their employees.
Pensions minister Laura Trott said: “Ensuring that pension schemes deliver value for money doesn’t just mean low costs and charges. It also means that savers get good value from their investments and receive a quality level of service.
“Improving the availability and transparency of information and data on these key factors will enable schemes to compare and improve the overall value for money they provide, driving competition across the market. In addition, it can improve performance and help drive consolidation by removing underperforming schemes from the market.”
'Reliable, useful, and comparable'
In addition, the government is also proposing disclosure of a forward-looking metric for target future performance.
The government said while most investment performance data under the framework would be backwards-looking data, it recognises that future investment performance is what ultimately matters to savers.
“Calculating reliable, useful, and comparable forward-looking projections of investment returns can be challenging,” it said.
“However, we think a simple forward looking metric could supplement backward looking information.”
The government outlined that this would be helpful to employers and others in selecting and monitoring schemes and be useful where schemes have made changes to their investment strategies or cost structures.
“We recognise that schemes and providers may have an incentive to inflate expected returns to attract business, but over-promising is likely to be called out publicly over time.”
Alyshia Harrington-Clark, head of DC, master trusts and lifetime saving at the at the Pensions and Lifetime Savings Association, said: “In a regime where most workers are defaulted into saving, it is paramount they can be confident of receiving good value, irrespective of the type of scheme they find themselves in.
“With this in mind, we are pleased to see the scope includes ensuring legacy products also provide value for money.”
Harrington-Clark added: “We will continue to work with government in creating a framework which considers different aspects of value, including net investment performance, costs, and quality of service, which is both workable for schemes, enables a meaningful assessment of value for those overseeing them, and avoids any adverse consequences, such as providers ‘herding’ towards an average rather than striving to outperform.”
