Pension schemes to be rated red, amber or green in plans to improve transparency for savers
A new traffic light-style rating system for workplace pension schemes could improve transparency over their performance and ultimately lead to better value for savers, according to the Government and regulators.
The plans aim to reduce the number of savers sitting in poor-value pensions and schemes would be publicly rated red, amber or green, once the framework is finalised.
Competitive pressures should help to drive up standards and over time, regulators expect to see less of a gap between worse-performing schemes and the market average.
The Financial Conduct Authority (FCA), the Department for Work and Pensions (DWP) and the Pensions Regulator (TPR) aim to put the joint framework in place for workplace defined contribution (DC) schemes.
This would be used by pension providers and those making decisions on behalf of savers to provide greater transparency over how schemes are performing.
Under the plans, schemes will be compared on public metrics that demonstrate value – not just costs and charges, but also investment performance, and service quality.
Poorly-performing schemes will be required to improve or ultimately protect savers by transferring them to better schemes. This should lead to better value pensions, without savers themselves having to take action, those behind the plans said.
The proposals will also support the FCA’s objectives around growth and competitiveness. Focusing on value rather than costs will enable providers to invest in assets which could deliver greater long-term returns but may have higher management costs, such as infrastructure or venture capital.
Sarah Pritchard, executive director of markets and international at the FCA, said: “16 million people save for their retirement into defined contribution pension schemes. We’re working with the Government and the Pensions Regulator to help them get better returns.
“We want to see a focus on long-term value, not just costs and charges. Given the impact these changes could have we are consulting now to ensure that the pension system can be ready to go when the legislative changes that need to happen are ready.”
The announcements comes as Chancellor Rachel Reeves called on pension funds to “learn lessons from the Canadian model and fire up the UK economy” at a roundtable in Toronto yesterday.