Costs and charges take centre stage in FCA pensions value-for-money drive

Tom Selby
4 October 2021
  • Costs and charges are at the heart of FCA plans to improve value-for-money assessments in workplace defined contribution (DC) pension schemes and ‘investment pathways’ (PS21/12: Assessing value for money in workplace pension schemes and pathway investments: requirements for IGCs and GAAs (fca.org.uk))
  • Regulator says governance committees tasked with ensuring savers receive good value should also consider investment performance and the quality of service provided to members
  • The Office of Fair Trading (OFT) previously warned competitive forces may not be enough to ensure good value-for-money in the workplace pensions market
  • Policymakers urged to avoid ‘hubris’ over costs and charges in attempts to boost the economy post-lockdown

 

Tom Selby, head of retirement policy at AJ Bell, comments:

“Ensuring people get good value from their pensions is a key priority for the Government and UK regulators.

“The three broad value-for-money concepts outlined by the regulator today – costs and charges, investment performance and service – feel like the right ones, with key considerations like environmental, social and governance factors likely to be captured within these.

“Automatic enrolment is the primary context for this renewed focus, with millions of people thrust into retirement saving for the first time and the majority contributing through inertia rather than by making an active choice.

“It is therefore crucial policymakers are firmly focused on ensuring these members continue to receive value-for-money from their scheme. While the 0.75% charge cap is an essential protection, increasing scale should mean providers costs drop significantly over time.

“As this happens, it is vital the benefits should be passed directly to savers rather than being swallowed up elsewhere, as we know even small differences in costs and charges can add tens of thousands of pounds to your final retirement pot.

“There is a danger that the desire from the Government and regulators to drive investments into illiquid assets and boost the UK economy risks diverting attention from ensuring more investors benefit from lower charges.

“Indeed, a recent Productive Finance Group Working Group report suggested there had been ‘excessive’ focus on costs and charges in workplace DC pensions. This feels at odds with the direction of policy in the last decade and risks leading to hubris in the market.

“Ultimately costs and contributions are the two key elements retirement savers have total control over, and therefore ensuring costs are as low as possible must remain a priority.”

Tom Selby
Head of Retirement Policy

Tom Selby is a multi-award-winning former financial journalist, specialising in pensions and retirement issues. He spent almost six years at a leading adviser trade magazine, initially as Pensions Reporter before becoming Head of News in 2014. Tom joined AJ Bell as Senior Analyst in April 2016. He has a degree in Economics from Newcastle University.

Contact details

Mobile: 07702 858 234
Email: tom.selby@ajbell.co.uk

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