‘People can’t make good pension decisions without good information’

interactive investor comments on FCA and TPR value for money in DC pension schemes joint consultation.

The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have published a joint discussion paper on developing a common framework for measuring value for money in defined contribution pension schemes.

A proposed common framework for disclosing information on value for money will include investment performance, scheme oversight - including data quality and communications, and costs and charges.

Becky O’Connor, Head of Pensions and Savings, interactive investor, says: “Value for money in pensions is absolutely vital - fees have a big impact on retirement outcomes. But charges are poorly understood. This is partly because of a lack of transparency around what people are paying in pounds and pence and how this affects the amount they are building up. 

“Percentage points look tiny on paper but the difference between a pension that costs 0.3% versus one that costs 0.6% can be thousands of pounds when you retire, over decades of pension contributions. 

“The issue of value for money becomes more important in periods when stock market growth may be more muted. When investment growth is high, the impact of fees is easier to overlook. In less buoyant times, the impact looks more obvious.

“It’s interesting to see that today’s discussion paper suggests that data quality and communications should be included in value for money frameworks. Done well, this could be a game changer. People can’t make good decisions without good information – value for money is only meaningful if you have meaningful transparency around charges and portfolio information.”

In interactive investor’s Show Me My Money discussion paper, published in December 2020, nearly half (48%) of respondents polled by Opinium could not guess the amount they pay each year in pension charges. The Boring Money consumer panel research found that generally, people were aware that they paid some kind of fee but did not know what this fee was.

Notes to editors

The “Show Me My Money” report was published in December 2020. Opinium surveyed 1,000 under 65-year olds between 5-10 November 2020 with a pension with the following providers: Aviva, L&G, Scottish Widows, Standard Life, Prudential, Royal London, Aegon, LV= (i.e. a life company pension)

Boring Money surveyed 19 defined contribution pension holders of a range of ages and confidence levels who have pensions with Aegon, Aviva, Legal & General, Royal London, Scottish Widows and Standard Life. The research was conducted in September 2020.