Improving outcomes for members of defined contribution (DC) pension schemes is a key theme this year.
Since the advent of automatic-enrolment, the government is rightly concerned to ensure that pension scheme members are getting value for money.
As a result, we have seen a dizzying number of initiatives and consultations launched in the last few months on workplace pensions, with everyone from the Department for Work and Pensions to The Pensions Regulator (TPR) and the National Association of Pension Funds getting in on the act.
The Office of Fair Trading’s (OFT) market study, published in September 2013, found that competition alone cannot be relied upon to drive value for money for all savers in DC workplace pensions, because of weakness on the buyer side of the market and the complexity of the product.
A cap on charges route has already been tested on stakeholder pensions. In that context, it effectively set a new benchmark for the industry, and imposing a cap for default funds in auto-enrolment schemes is likely to do the same.
Although a cap is important, it is more important to try to ensure members receive value for money. But defining value for money is almost impossible. I imagine this is why the government has chosen to focus on charges: it’s easy to understand, comparable and transparent, but only part of the picture of value for money.
The OFT’s other recommendations around improving governance in contract-based DC and TPR’s concerns about small schemes, as well as the audit work to be conducted by the Association of British Insurers on legacy schemes, will work as part of this wider drive to deliver value for money.
But the crucial piece of the jigsaw is member education. While the industry can work to get the building blocks right, member outcomes cannot improve to allow comfort in retirement if members do not save enough money.
Zoe Lynch is a partner at law firm Sackers