In a surprise statement, the FCA has accepted it my not given providers of workplace Group Personal Pensions (GPPs), sufficient clarity on what the FCA is looking for them to disclose.
Some stakeholders think that costs and charges data should be published at the level of the overarching HMRC registered scheme, with the data indicating a range of charges paid by members in different employer arrangements within that overarching scheme.
We don’t consider that aggregation of costs and charges at the level of an overarching scheme would promote meaningful comparisons, however. Instead, comparisons at the employer level could play a useful role in helping to improve value for money in workplace pensions.
However, some firms have told us that they were unclear at what level disclosures were required and have been preparing disclosures at registered scheme level.
It is more surprising that the handful of firms who have workplace GPPs to report on, had not sought clarification (the consultation has been open nearly a year). It sounds to me that either they are bad at reading consultations or they decided to put the original proposals in the “too hard” box.
The FCA’s sucker punch
Despite the FCA saying they are offering an easement, some employers can now look forward to some even more interesting disclosures over the summer, not least – an understanding of what other employers participating in the same “HMRC scheme” as them, are getting by way of a deal.
The disclosures that will be published by the IGCs this scheme year (by July 31st) go considerably further than any information previously published. The workplace pension Independent Governance Committees (IGCs) will need to either comply with the existing requirements laid down last summer
- To ‘pick a small number of reasonably comparable schemes or investment pathways, including those that could potentially offer better value for money (against the factors set out in the rules), to conduct their assessment.’
- When selecting these schemes, ‘take into account the size and demographics of the membership. This comparison with other comparable options on the market applies to the extent that information about those options is publicly available.’
disclose each set of costs and charges that they levy (and the number of employer schemes which have these costs and charges), or
show the distribution of costs and charges by employer arrangement in some other way, for example by dividing the range of charges into deciles (ie without also disclosing the relevant employer or scheme details against the particular costs and charges)
The second option appears an easement but may prove even more disruptive. It is infact a sucker punch to insurers and IGCs.
It will be interesting, reading this summer’s IGC reports , to find out which route each IGC takes and whether they and their providers consider the original disclosure the better of two evils.
That some IGCs and their providers have struggled to disclose benchmarking information is no credit to them. That the FCA needed to publish this “easement”, suggests a growing frustration with the IGCs inability to act for savers rather than their sponsors.
Impact on provider margins
In my experience (I was head of sales at Zurich/Eagle Star 1995-2005), employer scheme pricing was based on what margin we could agree with the gatekeepers – the employee benefit consultancies.
These gatekeepers worked on “leaving something on the table for the next man“, which added up to providers getting deals at pretty favorable prices to the insurers.
The schemes which were set up at the turn of the century with no assets, are now looking very healthy, if your employer pension has £100m in assets, the provider is earning £1000 pa for every basis point (0.01%) of charge they are making. The range of charges is between 10 and 75 bps (0.1% to 0.75%) so there is considerable scope for negotiation and the FCA know it.
Indeed, the statement that the FCA put out early in June shows that they are now on top of this subject and have grasped how important it is that employers are empowered to understand their costs. The FCA sees the disclosure of charges at employer level as meeting three statutory objectives;
competition – scheme members and others can access better information about costs and charges, promoting more effective competition between firms in the interests of consumers.
consumer protection – better information about costs and charges should enable scheme members to decide if their scheme is giving them value for money and if it will meet their future needs.
market integrity – workplace pension schemes should be better held to account by their members, which would improve the orderly operation of the financial markets.
I think it ambitious to expect members to be picking up on costs and charges they are paying, through disclosures from the IGCs. However employers have the capacity to be more assertive.
And I see an opportunity for HR, reward and payroll departments to benchmark themselves and renegotiate charges for staff either with the existing provider, or by switching to a rival.
The problem for employers was correctly identified by the Office of Fair Trading in 2013 when it wrote in its market study.
“The buyer side of the DC workplace pensions market is one of the weakest that the OFT has analysed in recent years. Part of the reason for this is that most employees do not engage with, or understand their pensions. Pensions are complicated products, the benefits of which occur a long time in the future, for many people”.
Consumerists have long argued that employees did not have the information to make sense of their pension pots. But moves are afoot at both the FCA and the Pensions Regulator to make sure savers in workplace pensions have simple statements that tell them both the costs they are paying on simple pension statements published by law. So, both employers and members will be better empowered to take decisions – and soon!
Of course, employers should not be making purchasing decisions just on price, (value is the other part of the equation), but this move from the FCA should be picked up on by every employer that runs their workplace pension as a GPP (and many who participate in master trusts and have their own company workplace pension).