Better outcomes will not necessarily mean lower costs and charges. The consultation paper is emphatic that the cheapest schemes to run will not necessarily deliver the best performance in the long term for consumers, and that other relevant factors include the quality of services provided.
“What is new in [this framework] is the consistency,” says Tess Page, UK wealth strategy leader at consultancy Mercer. “Maybe not so much in how you look at charges and performance, but if you look at the section on quality of services, IGCs in the past have looked at that in different ways.
“What's new is that there is a very clear series of structured questions around, for example, how often do you look at your common data? So it's more the consistency that will be new, rather than the aspects that they're looking at in themselves.”
A data-led approach
Something that underpins this element of consistency is data, and Page says that from the perspective of trustees and IGCs, data will be a challenge. “Everyone's system looks slightly different in terms of what data comes out of it automatically, particularly around administration,” Page adds.
Box at LCP agrees that the proposals require a large amount of data to be gathered and analysed, particularly when it comes to investment performance and charges.
“It took several years for the industry to be able to comprehensively provide this data for the current chair’s statement requirements, and there are still some notable providers where getting this data is challenging.
“The VFM framework will be less effective if this experience is repeated, and therefore the FCA will need to be willing to step in and act where providers do not supply the required data.”
Through data collection, evaluation and publication, the FCA says the framework is designed to allow direct comparison between the performance of workplace DC pensions schemes. In its consultation paper, the regulator also identified the potential for league tables to emerge using the framework data.
But alongside publicly available data on consistent metrics, could the framework lead to homogenisation in the market?
“This is one of our main concerns about the proposals,” says Box. “In order to avoid even an amber rating, schemes could become afraid to be seen as an outlier and therefore become more risk-averse. This could lead to herding of investment strategies, rather than rewarding schemes that are willing to innovate and invest for the long term.”
Page at Mercer agrees that from the perspective of short-term performance, there is a concern that the framework might lead to an element of herding.
