No wonder Laura Trott has been quiet on private pension reform lately, she has a megaphone rather better than Big Zuu
A central plank of the reforms that will be unveiled tonight by Jeremy Hunt will be the VFM Framework that has been the subject of 25 podcasts and innumerable blogs by me and a small number of interested parties.
Now this technical backwater that many still call a “box-ticking exercise” is centre stage. There can now be little doubt that the consultation response, due out in the next few days, will translate into legislation and that unlike previous regulation on IGCs and Trustees, this Framework will get political support at Cabinet level.
Still in denial?
I suspect that most readers will still be in denial that the VFM Framework will have lasting impact on the way workplace pensions are assessed and delivered to their millions of users.
- In my view they will be the occupational pension’s consumer duty. It will mean self-regulation with a big stick, wielded by TPR and FCA with powers from parliament.
- It will mean poor schemes will close , not just for economic reasons but sometimes because they are forced to cease operating.
- It will mean that schemes that cannot pass three tests on the way charges are spent, the way money is invested and the way members are served, will have to hand over the keys to other more successful schemes.
- It will lead to fewer, bigger schemes with the capacity to do more with our money than stick it in listed markets through a “tracker”.
- It will lead to many of us paying more for our investment management in the hope of us getting better value.
This legislation won’t happen immediately, but as with the Consumer Duty, this legislation should have an immediate impact on the procurement of workplace DC pension by employers choosing or -rechoosing as part of their auto-enrolment duties.
It will also mean that the focus on workplace pensions shifts from the headline price (the AMC) to the achieved performance (measured on a backwards looking basis) and future performance (measured on a risk-adjusted basis).
A Treasury pension intervention that’s not about tax
I suspect that the market assumes that the only lever a Chancellor is prepared to pull is a tax-lever. I have said, ever since Mel Stride arrived as SOS for the DWP, that the Treasury would be taking a more active interest in pensions for their investment capacity. Laura Trott is proving extremely ambitious, she has kept her power dry and not courted attention for anything but the main event.
Expect the announcement of the response to the consultation on the VFM Framework to be high profile and framed by what Hunt says tonight at the Mansion House.
For once , pensions are going to be talked of in terms of the value they can offer, rather than the liabilities they represent. A pension intervention from the Treasury that’s not about tax, should be welcomed.