The Financial Conduct Authority and The Pensions Regulator have published consultation paper CP26/1 on the proposed Value for Money (VFM) framework for defined contribution pension schemes. The framework is intended to allow consistent comparison of schemes across investment performance, costs and service quality, helping regulators, trustees and employers assess whether arrangements deliver good outcomes for savers.

Arc Pensions Law has responded to the consultation, focusing on the legal and governance issues that may arise as the framework is implemented.

A central theme of our response is the importance of consistency between regulators. The VFM regime will operate across both trust-based and contract-based pension arrangements, meaning it will sit within the overlapping regulatory environments of the Department for Work and Pensions, the FCA and TPR. While the consultation proposes a shared framework, differences in interpretation or enforcement between regulators could lead to confusion or regulatory arbitrage. We suggest that the introduction of the VFM regime presents an opportunity to revisit and strengthen existing coordination mechanisms between regulators to ensure the framework operates coherently across the market.

Our response also highlights practical concerns around implementation timing. Under the current proposals, the first VFM assessments are expected in 2028, which would require schemes and providers to begin collecting relevant data during 2027. However, many of the detailed technical requirements are not expected to be finalised until the second half of 2026, leaving a relatively short period for schemes to design and implement the required systems and governance processes. We suggest that regulators consider whether a phased bedding-in period would be more practical to allow firms to build the necessary infrastructure without creating compliance risks.

The consultation also introduces forward-looking metrics (FLMs) alongside backward-looking metrics to help assess expected future outcomes for members. We support the inclusion of FLMs, as they provide important context when assessing long-term pension strategies, particularly where investment approaches are evolving or where diversification into less liquid assets may affect short-term results. However, we note that robust guardrails will be needed to ensure assumptions remain credible and do not unintentionally distort value assessments.

In addition, our response considers several aspects of the proposed ratings and assessment process, including the potential consequences of an ‘amber’ rating. In particular, we note that automatic closure to new business for some schemes could have significant operational implications, particularly for master trusts that depend on ongoing inflows to maintain scale and stability. We suggest consideration is given as to whether a defined stabilisation period could be introduced (for example two to three years) during which a scheme is required to demonstrate improvement while remaining open to new business. This would preserve regulatory pressure for improvement, while avoiding the disproportionate and potentially irreversible consequences of immediate closure to new business.

Finally, we comment on the proposed central VFM data repository, noting that further clarity will be needed on governance, confidentiality, liability and technical connectivity requirements before schemes and providers can build the systems needed to interact with it.

Our response

Our submission addresses a number of areas within the consultation, including:

• coordination between the FCA, TPR and DWP in implementing the framework
• implementation timelines and operational readiness for schemes and providers
• the role and safeguards for forward-looking metrics
• the structure and consequences of the proposed ratings framework
• governance and operation of the proposed central VFM database

What’s next?

The consultation forms part of the wider government and regulatory agenda to improve transparency and accountability within the defined contribution pensions market. As the framework develops, further detail will be needed on operational requirements, data reporting and regulatory coordination.

Arc Pensions Law will continue to engage with the development of the VFM regime and looks forward to contributing to future stages of the policy process.