Regulator warns schemes on charge focus
The Pensions Regulator (TPR) chair, Emma Douglas, has warned defined contribution (DC) schemes against focusing too much on marginal differences in charges, instead prioritizing investment performance and member outcomes. Speaking at the Sackers Pensions Conference, Douglas argued that the forthcoming value for money (VFM) framework would be a key tool in improving outcomes.
The market has historically focused too heavily on fees, Douglas said, because they are easier to measure than future investment performance. She noted that providers are often priced within one to five basis points of each other, creating a risk that attention is placed on small differences in charges rather than overall returns.
Value for Money Framework
Douglas emphasized that the VFM framework would put performance net of fees at the heart of the conversation, including forward-looking metrics. This approach would help shift the focus away from just looking at fees and towards overall investment returns.
A 1 per cent improvement in investment returns for an average saver starting at age 22 could result in a pension pot around 30 per cent larger, Douglas suggested. She also highlighted current default fund performance data, which shows that over five years, a £10,000 pot could be worth 46 per cent more in a high-performing scheme than in a poorly performing one.
Importance of Default Options
Douglas emphasized the need for improved retirement defaults, as most defined contribution (DC) members don’t actively select their pension. She labeled many savers as ‘triple defaulters,’ sticking with their scheme’s default investment, contribution rate, and retirement age.
Around 75 per cent of DC pension holders aged over 45 do not know they need to decide how to access their pension at retirement, Douglas noted. Well-designed default pensions would therefore be central to TPR’s aim of getting more people on track for a secure retirement.
Douglas warned against a one-size-fits-all default, as individual factors like housing, health, and family can shape the best retirement approach. She said trustees must create tailored defaults, and members must share personal details to ensure suitable grouping.
Future Reforms
She called for reforms focusing on sustainable income, better performance, clearer information, and improved retirement defaults.
Technology would also play an increasing role, Douglas noted, with better data supporting pensions dashboards and responsible use of artificial intelligence (AI) potentially improving decision-making, engagement, and regulatory oversight. However, she warned that AI adoption would need strong governance, accountability, and cybersecurity.
