Actions taken by the FCA, the DWP and pension providers, together with Independent Governance Committees (IGCs) and trustees, result in lower costs and charges to consumers on about £24.9bn in workplace pension schemes.
Background
In December 2016, following our joint review of pension providers’ progress in implementing the recommendations of the Independent Project Board (IPB) to improve value for money for customers in workplace pension schemes, the FCA and the DWP published their joint report 'Remedying Poor Value Legacy Workplace Pension Schemes: Findings from the Joint Review of Industry Progress against the Independent Project Board Recommendations[1]'.
At the time of publication of the report, the FCA and the DWP found that the assets under management (AUM) at risk of costs and charges above 1% had been reduced by £20bn. Whilst we were satisfied that progress had been made by providers, there was still work to be done, as some customers were still exposed to higher costs and charges in potentially poor value schemes. We were concerned that a small number of providers had not taken sufficient action and others had yet to complete their remedial actions, for example moving customers to lower charging schemes.
Continued success
We can now report that costs and charges have been reduced to 1% or less on a further estimated £4.9bn AUM since we reported in December 2016, as a consequence of the actions we asked providers to take.
Following our feedback letters, in which we required remedial action or an explanation of high costs and charges, and following independent challenge from their IGCs and engagement with trustees, providers replied to us setting out progress made and any remaining actions they needed to take. We reviewed providers’ responses and were satisfied that, overall, significant progress had been made.
Remaining high costs and charges, amounting to £0.9bn (from circa £25.8bn AUM at the time of the IPB review) fall predominantly into two categories:
- Some providers set out reasons why they believe certain of their products offer value for money even where charges are in excess of 1%. Where our analysis has resulted in the valuable benefits being justified in line with the IPB review, these have been accepted. However, in other cases IGCs have challenged this position. We are unable to confirm in these cases that the provider is meeting the requirements of the IPB regarding value for money on these products, until such time as discussions between the provider and IGC have concluded.
- And for a small number of providers, in both contract-based and trust-based schemes, there are actions that will not be delivered until next year.
Next Steps
We have written to all providers that participated in our review setting out our clear expectation that they will continue to ensure that customers are not exposed to high costs and charges that are poor value for money, and that they engage on an on-going basis with their IGCs, trustees and members as appropriate to achieve this.
And for the small number of providers (and schemes) where residual actions will be delivered next year, we have reiterated our expectation that they take the necessary actions and consider adopting temporary measures until implementation of permanent actions.
This is a good outcome for current and prospective members of workplace pension schemes, who can have confidence that potential investment returns on their retirement savings are not being eroded by excessive charges, increasing the prospect of a higher income in retirement.