If you are covering any of the DWP pension consultations released today, please see the following comment from Jon Greer, head of retirement policy at Quilter:
"A slew of DWP consultations looking at how to improve the pensions industry have been published this morning. The consultation on value for money looks how pension schemes can ensure they deliver value for savers stressing that while value and costs are naturally connected, value does not just mean low cost, but also good value from good investment performance and service.
"To improve the overall value for money, information and data must be more transparent and accessible, thereby encouraging competition and improvement. A common industry-wide value for money assessment framework would help ensure that customers are better equipped to understand exactly what they can expect. The VFM framework will allow comparisons between different schemes in terms of costs and charges, investment performance and service standards. However, as has been acknowledged designing a framework with metrics that can be used across scheme types and providers is inherently complex.
"This consultation feels like a natural extension of the new Consumer Duty regulation being implemented by the FCA as the proposed framework in the VFM consultation is aimed at making sure that member outcomes are the top priority when decisions are made about people’s savings which goes to the heart of the Consumer Duty. A closed consultation also released today about broadening the investment opportunities for DC schemes further illustrates that there is a shift from looking purely at price and instead looking at helping people access the best possible investment returns by helping to broaden the DC investable universe and providing guidance on the exemption of performance-based fees from the regulatory charge cap proposals.
"These types of changes are needed. While Auto-Enrolment has been a roaring success, it is predicated on the vast majority of savers not actively choosing or engaging with their pensions. They therefore rely on the system to deliver value for them so the pension industry must help savers receive value for money by default, while also promoting transparency, comparability, and competition.
"One of the other impacts of AE is that it has boosted the number of small pots in the pension industry as people build up relatively small sums in their workplace pensions before moving to another job and starting the process again. The growth of deferred small pension pots is a concern, as it creates undue cost and inefficiency in the pension system and may impact retirement outcomes. The consultation opened today on how the growth of deferred small pots is aiming to tackle the problem.
"Research shows that there are an estimated 8 million deferred pots, with a potential rise to 27 million by 2035. The value of lost pension pots has increased from £19.4 billion in 2018 to £26.6 billion in 2022, and the growth in small pots is adding increased costs and inefficiency to the pension market. The Small Pots Cross-Industry Co-ordination Group estimates that the growth of small pots will result in wasted administration costs and negatively impact the financial sustainability of pension providers. In 2020, the Small Pots Working Group was set up to address the growth of small pots and concluded that the pension industry should prioritize automatic and automated large-scale transfers and consolidation.
"Automation would help however the consultation on understanding how members engage with workplace savings out today highlights that one of the biggest barriers to consolidating deferred pots is people having a lack of confidence in their own financial knowledge and also fearing scams. People who have consolidated their pension savings tend to do so if prompted. Ensuring that members have more confidence in their decision making skills is key. This might be delivered through better financial education so people have a better understanding of the retirement saving landscape."
