The FCA and TPR’s consultation on The Value for Money Framework - Which? response

Which? continues to strongly support the introduction of a Value for Money (VFM) framework for DC workplace pension schemes. The introduction of a whole-of-market framework requiring schemes to disclose metrics on their investment performance, costs and charges and quality of services will enable more reliable comparisons on the performance of pension schemes. With robust supervision and enforcement by the regulators, it will also ensure underperforming schemes improve their performance, or consider consolidating or exiting the market if they are continually failing to offer their members good value for money, supporting good outcomes for savers in the long term.
We also support many of the latest proposals in the framework. These include:
- Moving to a 4-point RAGG system. The original proposal (RAG) risked confusing users as it meant that an amber rating could encompass both value and not value schemes. By splitting out this intermediate rating into amber and light green, it is much more intuitive which schemes have been assessed as providing value or not. This should enable users to more easily consider the VFM ratings in their decision making.Introducing a commercial comparator group, rather than allowing providers to select three comparison firms. This will support greater consistency between assessments, allow easier comparison between firms and reduce the risk of gaming that was a likely possibility under the original proposal.
- Creating a central VFM database. A central database will make it easier for all users to find and compare assessments. It will also better support third-party organisations to review and use the data to conduct their own research and to provide guidance and advice to others, as appropriate. A central database should also make any connection of VFM information to pensions dashboards smoother in future.
- Requiring providers to move savers in red-rated schemes to value arrangements. It is not a good outcome for savers to be in schemes that are consistently not delivering value, and can cause significant consumer harm in the long term. This proposed requirement is a necessary formalisation of existing duties on trustees and providers as it removes any ambiguity for trustees and providers on appropriate next steps, ensuring long-term consumer harm is minimised.
- Using a limited set of quality of service metrics at launch (and potentially ongoing). We recognise that assessing member engagement and satisfaction is a particularly challenging area. It is right that the regulators take the time needed to get this right. However, we do not firmly believe that it is necessary to assess these two areas to form a view on quality of service. This is for two reasons. Firstly, the primary objective of a quality of service assessment is the identification and mitigation of poor service that causes member harm, rather than the incentivisation of above-average service levels. This is best captured through the proposed negative perception metrics. Secondly, member engagement is not necessarily a relevant measure of scheme quality or good consumer outcomes, particularly given the high levels of saver disengagement with pensions in the UK.
We agree that introducing forward looking metrics (FLMs) could be valuable, but we propose introducing stronger guardrails to further minimise the risk of gaming. We propose that where a pension scheme’s VFM assessment leans more heavily on FLMs in step 1, the trustees or providers should be required to obtain independent verification of their FLM assumptions and results and/or be required to disclose their assumptions to the relevant regulator. This would increase the consumer protections in an area where there is a clear risk of gaming while ensuring the burden on firms is proportionate to the degree to which an assessment relies on the use of FLMs to determine the overall rating.
We continue to urge the FCA and TPR to extend the VFM framework to decumulation, especially once guided retirement obligations are in force. We recognise that there are unique complexities in designing a value for money framework for decumulation. However, extending the framework to include decumulation will better support consumers, and employers on behalf of their employees, to make informed decisions by enabling provider comparisons. It will also enable regulators and third parties to weed out underperforming providers in decumulation. This will be particularly critical once guided retirement provisions come in, when more savers than ever will be navigating provider-led decumulation journeys. It will help to ensure even the least engaged consumers can be confident that they are receiving good value for money.
Lastly, we wish to emphasise that the ultimate success of this framework rests on the approach to supervision taken by the FCA and TPR. We understand the necessity of placing the primary responsibility for these assessments on trustees and Independent Governance Committees (IGCs). Given the current number of in-scope schemes, a direct, regulator-led assessment of every arrangement is likely to be impractical. However, for this model to be effective, there must be rigorous regulatory oversight to ensure these assessments are accurate and genuinely identify and rectify poor performance. We also propose that as the market continues to consolidate (driven by the broader set of reforms designed to lead to fewer, larger, better schemes), there would be a strong case for the regulators to transition to a more active role in part of the assessment process, as has been adopted by some other countries (e.g. Australia). A model with greater regulator-involvement would likely be more reliable and better trusted by the public.

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