By Ahmed Bawa, CEO of Rosemount Financial Solutions (IFA)
As all advisers will know, making the decision to save into a pension is only the start. What really makes a difference for clients is making the right decisions over where that money goes, and whether they are getting true value for money from the contributions they make each month.
It’s an issue that the Financial Conduct Authority is rightly preoccupied with, having recently launched a consultation over a value for money framework, essentially making it easier for savers and advisers to compare workplace pension schemes on a like-for-like basis.
The framework will include a wide range of metrics, stretching from past investment performance and charges to communication and administration. In theory this can then lead to what are effectively league tables, meaning savers and advisers are in a more informed position for comparing what they are paying for and what they are getting in return.
There will also be ‘traffic light’ ratings for value for money for these individual schemes.
This transparency is hugely important. Workplace pensions have been a great success to date, as they push people into pension saving almost without realising it. However trust in the system can easily be eroded if savers believe they are being kept in the dark over value for money, and what sort of pension pot their contributions will lead to. That will only become more pronounced if and when minimum contribution levels are increased in the future.
While there is a lot of detail around the proposal still to be determined, and no concrete timetable in place for introducing the framework, the focus on providing savers with a better deal is welcome.
Complementing not replacing
It was important to see the FCA note that this framework will work alongside Consumer Duty, rather than acting as a separate value for money challenge for pension providers to meet. That sort of joined up thinking is essential if we are to provide clients with genuinely useful insights, rather than confuse the issue with multiple measures.
That connected thinking also needs to apply to the pension dashboard plans. The repeatedly delayed dashboard is a crucial element to making sure that savers and their advisers are genuinely informed about whether a saver’s pension planning is sufficient, or whether further action will be required, yet the can has been kicked down the road yet again.
There is still no genuine launch date for the programme, no real insight into when there will be a proper system bringing together an individual’s various private, workplace and state pensions.
It should not be underestimated just how transformative such a system would be, not only because of the greater insight into what sort of pensions a saver has, but also drastically reducing the chances of pensions being lost, falling between the cracks.
That’s all too easy to happen in the modern world, with people moving between jobs and picking up workplace pensions along the way.
Advisers are vital
Greater transparency over pension saving can only be a good thing. Pension savers need to have faith in how their money is being handled, and that can only come through greater communication from scheme providers. Up to now there has been too little transparency around workplace pensions, compared with private pension investments.
This transparency will also force providers to up their game, to ensure that savers are receiving true value for money, or else have to shut up shop. Again, this has to be welcomed.
Yet transparency alone is not going to lead to savers enjoying fruitful retirements. Pension saving is crucial, but it is only one part of the puzzle when it comes to wealth planning.
This is why advisers play such an important role. They can help the client actually use that information they have about the performance of their workplace pension, guide them into putting that data to use.
They can also use that pension performance to build a comprehensive plan with the client over their future financial health, to work out what other building blocks need to be in place for the client to achieve their goals.
Understanding whether a workplace pension is delivering value for money is only the start; it’s the job of the adviser to ensure their client can act on that knowledge and build the long-term strategy for meeting their needs.
