In the first episode of series five of The Professional Investment Podcast, Jerry Butcher − workplace savings director at Scottish Widows, talks to me about the government’s new proposed ‘traffic light’ value-for-money framework.
Last week a tribe of government departments – The Pensions Regulator, the Financial Conduct Authority and the Department for Work and Pensions – published a consultation on a value-for-money framework for defined contribution schemes.
Jerry chose this announcement as his news story of the week. We discuss how a four-point rather than three-point traffic lights as well as the incorporation of future performance metrics will allow for greater nuance when it comes to assessing the performance of pension schemes.
We discuss the implications of the proposed framework for pension providers and how any scheme rated amber will have three years to improve while those rated red will have to transfer their assets elsewhere.
The VFM framework is not the only DC policy included in the Pensions Scheme – master trusts will also need to have assets of around £25bn. This drive to consolidation will compete against creating value for money and Jerry unpacks the implications for the industry.
We took a deep dive into what value-for-money – from an investment perspective – means for scheme members and Jerry expresses concern that these measures should not a means to push every scheme to follow the same investment strategy.
There has been much discussion about the inclusion of private assets in pension portfolios but Jerry warns these are no magic bullet and providers need the flexibility to design the best risk-adjusted portfolio to provide long-term wealth for members. He also cautions against governments becoming too statist about domestic investment.
Finally, we reflect that, for most scheme members, value for money means high service levels and providers working to improve engagement. He notes the current frameworks seems to put less priority on these metrics.
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