The difference between private pensions such as a Personal Pension Plan and a Self Invested Personal Pension (SIPP) compared to company defined contribution and workplace pensions is that for private pensions, the consumer has a choice or their adviser does as to which pension company and scheme best suits their needs and requirements. Workplace defined contribution pension schemes are chosen by the employer and the employee has no choice where their own work pension contributions are saved.
The concern of regulators, the Financial Conduct Authority (FCA) and the Pensions Regulator (TPR) is that workplace pensions do not have to show or display value for money.
Common Framwork for Value for Money
The two regulators are now working together to develop a common framework to force workplace pensions to make formal disclosures on fund choices, fund performance, investment management charges, administration costs, charges, penalties as well as options before and at retirement.
For example, if you are likely to require flexible drawdown in retirement, when selecting a private pension scheme you would likely ensure that this option is available within the scheme. With a workplace pension, you have no choice, if you wish to benefit from employer pension contributions as well as your own, you must join the workplace pension on offer.
Competition and Driving Costs Down
The FCA and TPR believe that be agreeing a common framework for employers and their workplace pension to dislcose, upfront and in black and white, the common features (or lack of), charges, funds and retirement options, as a standard then both employers and employees will be in a better position to judge whether they should pay into the scheme or search for a new one which is more competitive.
The common framework for dislosure will no doubt create both competition and clarity on the competitive position of workplace and company defined contribution pension schemes. Forcing pension scheme to deliver ‘value for money’ is the objective.