Workplace pension schemes could be labelled as red, amber or green in a “traffic light” rating system to ensure better value for savers, under new proposals from the Government and regulators.
Plans to be consulted on this year aim to reduce the number of savers with cash sitting in poor-value pensions.
Schemes will be compared on various metrics, including investment performance and service quality, with poorly performing ones being made to improve, or ultimately transfer their customers’ money to other schemes.
The Financial Conduct Authority (FCA), Department for Work and Pensions (DWP) and the Pensions Regulator (TPR) aim to put the new framework in place for workplace defined contribution (DC) schemes, which are the most common type.
But the ideas will first go to a consultation, taking place until 17 October.
Pension experts have said the plans are “radical” and that savers need “simple, straightforward information” when choosing pension products.
“Having a common framework will push pension schemes to compare the value for money they offer on a like-for-like basis. This will hopefully encourage, or even shame, schemes into improving their offering to customers – whether that means better investment performance, lower charges, slicker service or a combination of all of those things,” said Tom Selby, director of public policy at investment platform AJ Bell.
“It is crucial to keep a firm focus on what pension savers really need to help them make informed choices. Simple, straightforward information is key, presented in a way which is easy for consumers to use when they’re choosing pension products,” he added.
Laura Myers, head of DC pensions at consultancy LCP (Lane Clark & Peacock) said: “These are radical proposals which will shake up the workplace pension market.
“But it is vital that the Government’s drive towards bigger and bigger pension schemes does not ignore the value which is provided to members by many high quality smaller and medium-sized schemes. The priority must always be the best outcomes for scheme members and not simply size for size’s sake.”
The framework follows the announcement of a Pensions Schemes Bill in last month’s King’s Speech.
The Government said at the time that the bill would prevent people from losing track of their pension pots through consolidating small pots.
This is similar to plans announced by the last Government for a “Pot for Life” whereby people’s pension pots follow them.
Minister for pensions Emma Reynolds said: “Last year, over £130bn was saved into workplace pension schemes – money which we want to see working hard for future pensioners to give them better retirement incomes.
“Our Pension Bill and Pensions Review will make pensions fit for the future, and having an effective Value for Money framework will lay the foundations for this.
“I would encourage responses from across the industry, including trust-based schemes, to this consultation.”