“A good way to kick off the debate” – Now let’s get this VFM Framework over the line



The headline was given me by the DWP’s Des Healy after Pension PlayPen’s hour long debate on the VFM Framework. Unsurprisingly, it was one of our best attended events. Surprisingly, we heard not just from Des but other members of  the DWP team , together with the Pension Regulator and FCA teams working on the Framework.


If you want to watch the coffee morning debate, click the red button,

Although the debate was great, there is not yet a recognition of what DWP and the regulators are attempting to do. This blog is about what I and those on the call felt needed discussing and it’s a call to action to those who care about VFM for savers, to use the consultation period to get the VFM Framework to the finishing line.

I’ll highlight five themes from the discussion that we will no doubt return to

Political support – the Framework must be apolitical and needs cross party support


A holistic support – The Framework must be interdepartmental and across regulators


While the scope of the VFM Framework is currently on retirement savings – it must extend to cover the spending or decumulation phase as part II


Whatever is used as measures of VFM must be immutable and not capable of “gaming”.


Above all , the experience of the DC savers must inform the VFM Framework


The debate timescale is not a long one, the consultation ends on the 27th March. If this is the start of the debate, we must pack into the next 7 weeks what we can and focus on the things that really matter.

The DWP understands DB pensions and DB pension (for better or worse) are as good as sorted. As Des said, when the VFM team came together last summer, the DWP had no VFM team, I think it fair that the DWP knows very little about DC pensions. DC at both the DWP and TPR is seen through the lens of DB analysis which is why parts of the consultation (in particular chapter 4) read so awkwardly.

The debate that was had yesterday drew in TPR, FCA and DWP team comments ,  which suggested that the VFM Framework needs the input of the people who understand DC through the experience of DC savers. Here civil servants and Government ministers find themselves personally disadvantaged. While we learned yesterday that the Government Actuary’s Department now has a DC section, there are parts of the consultation that do not feel they are “informed by the experience of DC savers.

I suspect too that perhaps the most contentious issues will focus on whether VFM is something that is certified by Government with tests and thresholds, or is something that continues to be self-certified by workplace pensions through a “step by step” process.

There will be considerable debate over whether VFM is defined by what is happened or about what people will think will happen (backward or forward looking measures). Will poor past performance be justified by “risk-adjusted measures” so we take more notice of “value for risk taken” than the size of our pot? Will VFM be justified with reference to asset allocation , currency strategies and the elimination of cross-subsidies, or will it be assessed against the member’s actual experience?

There are two ways of looking at VFM – top down with a DB lens or bottom up with a DC lens. We currently employ a DB lens – are we prepared to move to the DC lens with all the issues that transparency brings?

The crunch question , one that was touched on tangentially in the meeting, is whether poor VFM – if it exists – is something that can be shared with savers or whether it is shared with those who chose the workplace pensions savers use (employers and occasionally unions).

The consultation is unclear on this. Laura Trott in her forward suggests that Value for Money is a consumer measure, the consultation often suggests it is not (yet). Again the debate is between those who adopt a paternalistic position where consumers are protected from bad news in heir own interests and those who see DC savers as being “on their own” and in need of information to take decisions on matters such as pot consolidation and who they choose to manage their money going forward.

I will be sending the video to the Shadow Pensions Minister and his team and hope that they will come to Pension PlayPen during the consultation and answer questions as the DWP has. We need to test the contention that the VFM Framework enjoys cross party support. Yesterday (and the consultation document) suggested that at the regulatory level , there is considerable unity between FCA , TPR and DWP – this is remarkable.

I hope to test an alternative way of measuring net performance based on the member’s experience with the DWP in the weeks to come and I also want to discuss with them the benchmarks they could use to operate VFM testing on its three measures.

But most of all, I hope that the private sector can get together as we did yesterday and have our say. The VFM Framework has the potential to be pension’s consumer duty and it is vital that what comes out of this consultation is able to improve the consumer’s outcomes from their savings intangible ways. However we measure VFM – it must be with a focus on improving saver outcomes.





About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to “A good way to kick off the debate” – Now let’s get this VFM Framework over the line

  1. con keating says:

    There are several major failings with the proposed VFM approach
    The idea that investment managers may report their expected return on funds managed is one – the scope for abuse is self-evident. And saying it will become obvious who is not achieving their target does not cut it – for those who bought in to those promises it is too late, they can look forward to a crap retirement.
    But the most important flaw is that VFM is about the member experience and that may be very far from that of the fund in which they are invested. Let us also not forget Warren Buffett’s analogy – for those in the saving mode with further contributions to be invested we actually want low prices and higher returns in the future rather than stellar prices – if we are planning to buy and consume a hamburger every day, we want low prices not high, and it is only when we start producing hamburgers and selling them that we want high prices.
    As for standard deviation and maximum drawdown as risk metrics – forget it. The consultation does not seem to realise that the IRR (compound geometric return) is actually a risk experienced measure. All those bad returns are embedded within it. Further “risk adjustment” is an invitation to mislead.

  2. Chris Giles says:

    Henry, what really matters (and you have identified this in your third highlighted theme), is that currently we have a VFM Framework that just measures the performance of a savings scheme. What we (or rather ‘Members’) actually need to see is an assessment of how their savings will lead to pension payments in retirement.

    I note that neither the Ministerial nor TPR Foreword makes reference to ‘spending or decumulation’ and FCA only intend in the future “to consider extending the framework to pensions in decumulation”. The recent ‘lifestyle’ fiasco tells us this is an issue that needs to be addressed now!

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