The U.K.’s Financial Conduct Authority wants to rate workplace defined contribution plans on costs, investment performance and service quality — and will make the assessments public.
Plans will be rated red, amber or green under a traffic light system under the proposed framework, which is now open for comment by the industry. Plans will be compared on public metrics under a joint framework developed with the Department for Work and Pensions and the Pensions Regulator, which the FCA said demonstrate "value for money" — costs, charges, investment performance and service quality provided to participants.
It would also require firms to take specified actions where a DC plan has been assessed as red or amber — including transferring participants to better plans. It is hoped that the reform would lead to investment committees within DC plans focusing more on investments that can return maximum value, rather than being centred on investments that have lower associated costs.
Reacting to the consultation, Ruari Grant, senior policy lead at industry body the Pensions and Lifetime Savings Association, said in a news release: “We support the plans to increase focus on net risk-adjusted returns delivered to savers, as opposed to just the cost of provision, and the proposed performance disclosures and comparisons should go some way to achieve this.”
Grant also urged the FCA and U.K. government to to bring nonworkplace plans within scope as soon as possible to fully assess all areas of value and cover the whole market.
Laura Myers, a partner at consultancy firm Lane Clark & Peacock, was both optimistic and cautious regarding the framework: “We have long advocated a change in emphasis from cost to overall value, so the new focus of the VFM framework on a wider range of measures of value is welcome.
“But there are a number of risks with the new approach. One is that high quality plans run by individual employers, often with the benefit of an employer subsidy, may not score highly in the eyes of the government compared with giant master trusts, even if member outcomes could be as good if not better. It is important that the government does not focus on size for size’s sake,” she said in a news release.
Australia's regulator, the Australian Prudential Regulation Authority, introduced in 2021 a performance test for MySuper default funds — default plans for participants who don't choose their own super fund to join. The Your Future, Your Super reforms aim to encourage industry consolidation by weeding out weak superannuation fund performers.
