How to assess if a pension provider offers value for money

By reviewing a DC provider’s overall proposition, you can consider if it is best aligned to your objectives and needs of your members

Defined contribution (DC) pensions are on the rise; more members are being enrolled, with an increase in assets invested.

DC consolidation has emerged as a trend within occupational pension schemes, with smaller schemes consolidating into larger schemes – typically, a master trust. In January 2023, the Department for Work and Pensions, the Financial Conduct Authority and The Pensions Regulator issued a joint consultation looking at a common framework for assessing value for money across all DC schemes.

Delivering for employees

Value for money is a crucial component of helping members achieve good outcomes and there are several contributing factors to consider. These include charges, investment strategy and the overall quality of the provider’s proposition.

Research suggests that average charges for group personal pensions and master trusts are about 0.5% a year and good quality schemes can certainly attract lower charges. Looking at the provider’s charges for your scheme relative to other schemes of a similar size can provide perspective on pricing and help identify where improvements can be made.

Investment strategy is also an important consideration. It’s not just about headline performance, but also the strategy that sits behind it. Different investment managers and funds invest in different assets in different proportions and so perform differently depending on market conditions.

Understanding the strategies that sit behind the investment solutions and considering what’s the right approach for your members is essential. Looking at one metric such as performance in isolation will not give the full picture; it’s important to consider, for example, risk and return together to see where your provider’s default fund performance sits relative to its peer group.

By reviewing your DC provider’s overall proposition, you can consider which provider is best aligned to your objectives and the needs of your members.

For example, if your members are relatively young, digital engagement and access to other savings options might be key considerations. For schemes with older members, access to the full range of retirement options from the scheme together with the availability of guidance and advice will be important.

If your scheme is particularly complex, you will be focused on a provider with a robust administration platform and service.

You can also review your members’ engagement with their pension to consider whether they are planning effectively. Data you hold, together with data from your pension provider, will enable you to understand the likely needs of your members by looking at demographics such as age, gender, earnings, etc. You can then consider issues such as:

Are they saving enough?
Are they invested appropriately?
How engaged are they with their pension?
How often do they log in to view their pension details?

By understanding the likely needs of your members, and where they are, you can design a communication strategy to engage them. This can address information about their pension and the options available to them, relative to their likely goals and objectives.

Ask your provider for support. Most have communication materials, email campaigns and webinars your members can join which are all available for no charge. Importantly, by measuring where you are today, you can review the impact that your communications have on member engagement and outcomes.

The growth of DC members and assets has led to an increased focus on governance.

There are several ways you can ultimately improve what DC schemes are there for – to provide good outcomes for your members to enjoy in retirement.

A quality DC scheme offers value for money through good investment returns net of charges, together with a strong overall proposition aligned to the needs of the members.

It also ensures members have access to relevant and timely information and support that they will need to make good decisions from day one through and into retirement.