(00:07) Hello, everybody. My name's Johnny and I'm from Pension Geeks. Hi, everyone. I'm Rachel. I'm also from Pension Geek. How are you doing? And welcome to our new show. What's brewin in the world of pensions, which is dedicated to HR

(00:21) And pension managers and everybody who is actually, maybe a Pension Geek and anyone who's interested. Well, in pensions, that is. Well, today we're joined by Kate Smith from Aegon. Hello, Kate. Hello. Great to be here.

(00:34) Hello. How are you doing? I'm great. I'm great. Looking forward to talking to you guys. Brilliant. Well, this show is actually only 15 minutes. A quick overlook of what is happening, what is brewing in the world of pensions, I should say.

(00:47) And we've got a new brand as well, Kate. So, yeah, we've got a new whole new purple. Yeah. So so we're all ready for it. So we, what are we going to talk about today? Kate can you introduce. What you are talking about today? The title.

(01:01) Yes, we're going to talk about, the regulator's latest consultation on the value for money framework, something that I've been talking about for quite a long time. So we'll give you an update on that. Brilliant. And actually before we knew

(01:14) we were going to do this show, I mean, we actually have been doing some research and we have put some questions together that we'd like to ask you to bring to life. What is this all about? What is this all about? So, will we get to it then, Jonny? Yeah, of course.

(01:27) You start with the first question. I get. Well, hope everyone's ready for this. So Kate this value for money framework has been under discussion for some time now. Can you tell us more about what it's about and how it's going to affect workplaces?

(01:40) Of course. And it is going to be a big change but in the future. So yes, that's the government and the regulators, such as the FCA and the pension regulator have been consulted on the value for money framework for some time now. It’s about four years actually.

(01:53) And the purpose of this framework is to make sure that all members, saving in a defined contribution workplace pension scheme, just like the ones you have, are receiving value for money. So that's GPPs, Master Trusts and single

(02:07) employer trusts too. And so I, I'm really, really support. So I'm much in favour of having a framework. But there are some things we're going to discuss which maybe don't work quite so well. So here trustees and independent

(02:20) governance committee. So that's IGCs already measure value for money. For the schemes and published annual reports. And you've probably seen these we publish them online. But the thing here is they do it in different ways. For trust based schemes.

(02:33) They also do it at different times. And that means they’re not easily comparable. And the value for money framework will change. All of this is going to bring consistency and comparability to all these metrics with the same data metrics

(02:46) published at exactly the same time, and that will happen from 2028. So a little bit more about the background. So currently there's a big focus on costs and charges as a pseudo measure of value for money.

(03:00) And the government, government and regulators and also Aegon I myself are keen that the pension industry move away from this to a more holistic measure of value for money. So the value for money framework will do this.

(03:14) It's going to measure value for money across three metrics. So that's investment performance, costs and charges and the quality of services. And that's for workplace default arrangements. So it's going to be a lot

(03:27) of prescriptive data behind all of this. But it sounds brilliant that people having, you know, the ability to go in and have a look and benchmark different things, and especially for Pension Geeks,

(03:40) we're passionate about engaging people in their pensions and knowing that people are going to look in and senior people are doing the best job to engage people with the pensions. I think it's a good thing. It sounds like it'll be better for the members. Yeah.

(03:53) For employers, by the way, maybe it makes it easier for employers when they choose pension schemes in the future, because I would look at the value for money rating and presumably with the help of advisers. Really. Absolutely. Okay. Thanks, Kate. So my next question is

(04:06) we have a new consultation from the regulators. What are the big changes in this one? Yeah, there are quite a lot of changes. And one of the reasons for that is because we in the pension industry have been working with the regulators for some time on the framework.

(04:20) So we're really pleased that they have listened to some of our concerns and made some improvements. We do have some concerns about the new some of the new changes they've introduced. So I'll cover that in a minute. But there's four big changes,

(04:33) so I'll go through all of them. So the first biggie is an extended traffic light system. We now have four value for money ratings instead of three. So we now have red, amber green, light green and dark green.

(04:48) And here dark green means particularly strong performance. Light green means value good value, while amber means some improvements are needed and red means poor value. Don't want to be red if you are rated.

(05:01) If your schemes are rated red or amber, they'll have to be closed to new employers. We call that new business. It won't be closed to existing employers or existing members or new members to that arrangement of that employer, say will carry on.

(05:15) But red rated schemes will need to be wound up. A member's benefits transferred to a value for money scheme. So that'll be a light green or dark green type arrangement. So secondly, the framework will now include forward

(05:29) looking investment metrics. It already includes, backwards looking investment metrics. So that's where past performance actually happened. And we know what it's done. And it's very, very clear at least to me from the latest consultation proposals,

(05:43) that investment performance will be the most important metric going forward. I'll expand on that a bit later. Thirdly, there'll be fewer metrics. Including quality of service metrics and these quality of service

(05:56) metrics are largely being downgraded. There'll be only one engagement metric, and that's the percentage of members who have completed a death benefit nomination form, also known as an expression of wish form

(06:09) unfulfilled. Lastly, there's going to be a brand new online government built IT value for money database, and that's going to generate comparative data. So previously on the previous consultations, the idea was that trustees, IGCs

(06:23) had to publish their own value for money data on their own publicly available websites and then other schemes, other arrangements, other trustees, etc. would have to pick three arrangements to compare themselves against.

(06:37) But that's now all changed. It's going to be an average market approach, and I can talk about that a bit later to brilliant, brilliant. I was going to say, can you can you tell us a bit more about this market central database?

(06:50) Sounds interesting. Yeah. And it is a big change so that this was one that was a big surprise. We weren't expecting this, but it could it could work really well. So what's going to happened here is that trustees and pension providers will have to upload

(07:03) their value for money data. And that's going to involve an awful lot of data, by the way. They have to upload that to the central database. And under the current timeline for the regulators, the first value for money data, and that's the data

(07:16) at the end of 2027, will need to be uploaded in March 2028, and then a new IT database will generate comparative data, such as averages across all arrangements,

(07:29) but only from multi employer arrangements. So that's a bit confusing. And that will be Master Trusts and GPPs. And they'll do that apparently in April. So maybe upload in March and they'll provide data for you in April.

(07:42) Comparator data and then all trustees, IGCs will have to compare against these averages, their performance. And they'll have to use a regulatory best prescribed assessment process to come up with a RAGG rating for that arrangement.

(07:56) Then they'll need to publish this in October. With a value for money reports the context around why they decided to actually rate the scheme and the way they have done Brilliant, right? And well, it sounds like it could be a positive,

(08:10) but where you mentioned there, the movement of data, the uploading of data, are there any risks or challenges that that could come with that? Yes, I think there are many risks and challenges, right. What we call unintended consequences in policy world.

(08:23) I do think overall, once the database is up and running and approved and tested, it could work really well. But we're not there yet. It has not been tested yet with live data. Certainly not at scale. It's very new. It's very much in the prototype, stage.

(08:38) And, we have to remember that thousands upon thousands of data items are going to be needed to be uploaded, or even in some cases manually imported. And input and not every scheme is digitally enabled,

(08:51) such as the Aegon GDPR, Master Trust are not all the same, the sheer scale of this could actually cause the comparator or the IT database to actually fall over. But there's also big risk,

(09:05) a risk of data inconsistencies, skewed averages, unfair comparisons between different scheme types. And basically we feel there's so many risks here and we can't afford arrangements to be wrongly,

(09:18) RAGG rated or end up with a red or amber rating, because of incorrect processes and data, etc., which would mean closing to new employers. So we all concerned about that,

(09:31) but also just about the, timeline as well. It's two years now until this thing goes live. Okay. And we think two years is an incredibly ambitious timeline for an industry wide IT project.

(09:44) Just look at the pension dashboards. I mean, that's taken years and years and that's still not up and running. That's got fewer data points. It's got hundreds, hundreds and thousands of data points. And so, so the framework is designed to work

(09:57) across a very diverse, DC landscape. So it's all all very challenging. So again, we we strongly believe that a two-year trial period is needed, to allow more time

(10:10) to test and deliver the database behind closed doors. Yeah, definitely. When you mentioned about taking two years and how long the dashboard, the pension dashboard is going to take to create

(10:24) and it keeps getting moved back and back. Yeah. It sounds like a mammoth task. Yes. Why? Why try and rush it through? Yes, yes, take some time over it. Exactly. Okay. Okay, okay. Can you explain a bit more about the forward

(10:38) looking investment, metrics? Yes. Yeah. So as I mentioned, we already have historical, backward-looking investment metrics and the new, item or thing we have to do going forward

(10:51) is having forward-looking metrics. So the idea is that these metrics will be combined as part of the assessment process that trustees and IGCs will need to carry out, to check to see whether their arrangement is of value or not.

(11:05) So forward-looking metrics, they can be good idea, but they are highly subjective. We need to remember that, although they will be trustees and IGCs will have to and providers will have to get independent advice

(11:19) to actually set the assumptions for those objectives. Despite this, we think that this could still lead to a risk of gaming. With unrealistically high investment growth assumptions,

(11:32) which will make investment performance look better than perhaps it really is to achieve higher ratings. And of course, it might not actually happen because it's it's assumptions of what might, may or may not happen in the future.

(11:45) So we think there's a risk there. And it's important to get this right. But as I said earlier, the government clearly sees investment performance as the key metric here. So again, it's important to get this right. And so there’s no gaming.

(11:59) Is that realistic? Everybody knows where they are. It's another reason why we need a two-year trial period to actually look at how these metrics are going to work going forward. So you mentioned earlier that they actually downgrading the customers, service of,

(12:14) engagement metrics. Obviously to us at Pension Geeks, we've always believed in starting pitching to get people engaged in their financial future, get them thinking about, you know, what they might have to do.

(12:27) Building that financial education has always been a big part of, we believe, in changing people's lives slightly. Obviously. Yeah. The downgrading, it sounds, no.

(12:40) Not great. What's your thoughts on it? Okay. I, I would agree with that. I mean, they have downgraded it. There are fewer quality of service metrics than measurements. I should say, than in the last consultation.

(12:53) And the key thing here is that while we can clearly see that investment performance is a key metric, is that when trustees and IGCs come to rate that default arrangement, they can only use, the quality service metric

(13:07) to downgrade the rating, not to increase that. So that sends a quite a clear signal really. So we are very disappointed in that. And I mentioned about the single engagement measure, the percentage of people who complete their nomination forms,

(13:22) I think as a standalone measure, I just can't see that work. And I just don't think it's it's good enough. And partly the reason for that is because we can easily measure that. But what we what and not using as part of the consultation

(13:36) or measurement assessments is when they actually when people actually completed their services. Right. That doesn't seem to be a factor here. And we know full well, don't we, John? We talked about this many times that people could have completed these nomination forms

(13:49) years and years ago, and they can be completely out of date. So that is a concern. So remember I mentioned the trial period. That's not a good reason for it because if you could use that two years for the, regulators

(14:02) to work more closely with the industry to come up with better metrics for engagement and more metrics for quality of service, and as you say, it should all be about to improve outcomes. That's what we should be doing here.

(14:15) Okay. Yeah, absolutely. Going back to this, the trial period, Kate, that we’re talking about a bit here. So can you remind us, why do you think this is important to have? And what would this mean if we had a trial period. Well basically

(14:28) I mean a delay in it to some extent, but work would still go on underneath. So at the moment it comes in in 2028. That's the idea. That's the government's plan. So we're saying delay it till 2030 till it's fully rolled out.

(14:42) Why. Or we've got very good reasons and we've been speaking to the government regulators about this. So we're arguing for a two-year trial period to avoid any unintended consequences, and also to give the pension industry

(14:55) and those IT services that includes employers, advisers and of course, members confidence in the process and the outputs of the ratings, the data, all of that. So what we're saying, the trial period should just consist of

(15:10) the multi employers largest default arrangement. So that's GPPs and Master Trusts largest default arrangements and the largest single employer own trusts as well. So just a smaller group.

(15:24) But that will cover most of the market to be honest with where people are saving today. To take learnings from that before the full roll out. And also we believe this should be done behind closed doors. So we just share the data findings

(15:37) with the regulator. Improvements are made behind the background. It also gets more time, as I mentioned, to develop the forward-looking metrics and the engagement tools and all of that. So this doesn't mean that schemes, Aegon

(15:52) and others won't be working on improvements behind the scenes, because I can guarantee they will be. I'll be working hard to do all of that to get ready for the big launch date in 2030. So going forward, you know, it's all about having larger,

(16:05) fewer, workplace arrangements. And I think that will happen, but maybe a little bit later with fewer risks involved in that transition process. Yes. No. Certainly sounds like a sensible idea to me,

(16:18) but I'm not I'm not here to make a decision on it. And so my next question then is if I was a HR or pension manager, I would be thinking, what? What do I need to be doing right now? Is there anything employers

(16:31) need to be doing in line with this? Well, I mentioned the value for money framework. It's not going to be fully up and running until 2028 actually, or possibly later, possibly if we get the trial period. So we'll wait and see all that.

(16:44) But in the meantime, IGCs and Master Trusts will continue to publish their value for money reports as they do today. So employers will be able to see those and see how what the schemes are looking like and what what improvements they’re making

(16:57) if any. So employers don't need to do anything right now. And of course, Aegon's going to be fully involved in all the discussions. So we'll keep you up to date as things develop. Right. Okay. Right.

(17:10) So, okay. Do you want to just, summarize what we've spoke about here just quickly? So, people can take away what we spoke about today? Yeah. So the key points are the value for money framework

(17:23) isn't going to come in till 2028. It will cover default arrangements for all defined contribution schemes such as GP's, Master Trusts and single employer trusts. There'll be three value from value for money metrics.

(17:37) That's investment performance, costs and charges and quality of services. The investment performance, both backwards and forwards will be the key metric going forward. There'll be four value of money ratings. That's red.

(17:50) amber, light green and dark green. And we're going to have a new central value for money database, which will generate comparative data. And that's going to be a new government IT build. And Aegon, as I mentioned several times, is very supportive

(18:03) of a two-year trial period to try to mitigate any unintended consequences of the risks that I've identified. Fantastic, fantastic. Well, okay. Thank you for joining me. And Rachel.

(18:16) Thank you. Really, really helpful. Thank you. That's all in our series, what's brewin in the world of pensions? And thank you to you as well for joining. We've really enjoyed it today. And keep tuned in because this is a brand new series

(18:29) that will be coming out and we'll be tackling all these new issues. Lots more to come. Always something happening in the world of pensions.