The FCA and Department for Work and Pensions’ latest Value for Money consultation, CP26/25, sets out a substantially revised version of the proposed Value for Money Framework. The policy objective remains to move workplace pension competition away from a focus on price and towards long-term value for savers. Subject to the final rules and regulations, the Framework will begin operating in 2028 for larger and open commercial arrangements. It will be extended to all in-scope arrangements from 2029, when the formal consequences of an amber or red rating will also begin to apply.

A phased start

Under the revised Value for Money Framework, in 2028, all in-scope arrangements would submit data, but only scheme-designed, non-bespoke master trust defaults, large single-employer trust defaults with at least 50,000 members, and firm-designed, non-bespoke multi-employer contract-based arrangements open to new employers would undertake and publish assessments. Legacy and bespoke arrangements and smaller single-employer trusts would submit data privately but would not be publicly assessed until 2029.

Such phasing should ease the transition for small and medium-sized schemes. However, further clarification of the treatment of AVCs, hybrid schemes and arrangements preparing to transfer members is required.

The first data-collection period would also be shortened to six months, from 1 July to 31 December 2027. This would mainly affect quality-of-service data, since investment and charges metrics are generally measured at a point in time or over longer periods. The shorter collection period is intended to reduce operational pressure and the risk of comparisons being based on unreliable data or systems that have not been fully tested.

Trustees and IGCs should therefore be prepared to explain any anomalies and consider whether results based on the shortened period are genuinely representative.

Performance closer to members’ experience

Past investment performance, or backward-looking metrics, would be calculated to better reflect the returns a member would have experienced while moving through the scheme’s investment strategy towards retirement. This replaces the previous proposal, which did not reflect normal industry practice and which risked presenting a misleadingly favourable picture of more volatile investments.

The separate five-years-to-retirement measure has also been removed because the new approach already tracks performance throughout a member’s journey towards retirement, making the additional measure unnecessary.

Forward-looking metrics would remain part of the assessment, but the proposed requirement for third-party advice has been replaced with a requirement to disclose the return and risk assumptions underlying the strategic asset allocation. Those assumptions would have to be retained for at least six years.

While disclosure should improve scrutiny, it does not eliminate subjectivity. In our view, the Framework may therefore require greater consistency in the assumptions and methods used, active regulatory challenge, and appropriate limits on the weight given to forward-looking metrics. Backward-looking metrics reflect returns actually achieved, whereas forward-looking metrics depend on assumptions about future performance, which may prove optimistic!

More relevant comparisons, but continuing limitations

At 30 years to retirement, arrangements would be compared against the general commercial market. At retirement, they would generally be compared with arrangements targeting the same outcome, such as drawdown, annuity purchase or cash. A comparison group would have to contain at least four arrangements. Where there are fewer than four, the arrangement would initially be compared with the wider market, but trustees or the IGC could then consider whether its different retirement objective provides a credible and properly evidenced explanation for its performance, before deciding its final rating.

In the first year, detailed information on differences between employer groups would be available only to the regulators. Assessments would generally focus on each arrangement’s median, or typical, net investment performance, while anonymised market-wide information would show the wider range of results.

In our view, the simpler first-year approach may also be appropriate for some schemes in later years. Single-employer and non-commercial schemes often operate differently from commercial pension providers, meaning that direct comparisons may not always provide a fair picture. These schemes should remain within the Framework, but trustees should be able to explain relevant differences. More detailed analysis could then be focused on cases in which the initial assessment indicates a genuine risk that members are not receiving good value.

Preparing for consequences

The four ratings of dark green, light green, amber and red would be retained, but a 2028 amber or red rating would not automatically require the arrangement to close to new business, an improvement plan, or member transfers. Those formal consequences are expected to apply from 2029. Existing trustee duties and the Consumer Duty will nevertheless continue to apply.

The first year should therefore be treated as a live rehearsal rather than a consequence-free exercise. Trustees and IGCs should begin testing their data, challenging forward-looking assumptions, identifying weaknesses in the proposed comparator groups and agreeing how any adverse assessment would be escalated and addressed.

The challenge will be to ensure that public comparison supports better governance without becoming a mechanical league table that encourages schemes to adopt similar investment strategies irrespective of their members’ needs. The regulators acknowledge this risk and intend that trustees and IGCs should retain sufficient discretion to take account of an arrangement’s particular features, investment approach and membership.