The FCA have led the Value for Money, unlike previous versions where TPR led but hand in hand with it.
The Government is progressing the Pension Schemes Bill 2025 to create new rules for certain trust-based pension schemes with defined contribution benefits. Consultations on draft regulations and supporting guidance will follow, led by DWP and TPR.
At the same time, rules for contract-based schemes are being developed, with a parallel consultation planned. We are currently working towards 2028 for the first VFM assessments to be required.
The artificiality of having a separate regulator overseeing contract based and trust based schemes is obvious. Contract based schemes are increasingly operating in the wealth market and have a legacy of workplace saving. TPR (in DC terms) are almost exclusively in the workplace pension market with money from bosses.
So the market is increasingly splitting in terms of purchasing decisions and advice on the purchase. The FCA govern advisers to the wealthy and advisers that may have been around long enough to have advised on contract based workplace savings plans.
The dichotomy between regulators has never been greater, tPR has the weight of the flows and the FCA regulate the weight of savings!
The FCA’s opening to the consultation it (and TPR) are mounting on Value for Money in DC plans. This is the meat of it. Schemes will be divided into four types
The FCA gives us four reasons for
Why we are consulting
We are proposing revisions to make the way arrangements are assessed and compared more objective and robust. We are also responding to feedback and refining the data required.
The main changes proposed since consultation CP24/16 are:
- The introduction of forward-looking metrics to be considered alongside backward-looking metrics in assessments.
- Fewer cost and backward-looking investment performance metrics, focused on key metrics.
- Streamlined service quality metrics to allow further engagement with industry on others.
- Comparisons of value against a commercial market comparator group rather than 3 other arrangements.
- A four-point rating system rather than three, to allow identification of top performers.
Let’s look at those emboldened words
The way ; this is an attempt to guide those taking and helping to take decisions in a certain direction
Objective and robust; “not based on subjective feelings , based on what has and will be delivered” in my words!
Forward looking; predicting what might be delivered is not easy. Who would have thought that NOW with the Danish Government behind them, could have been such an investment and administrative disaster. Who could have thought that the LGPS Kensington and Chelsea Borough could have delivered more than the might Border and Coast. Predicting capability for the future is a big taking on and it will have much consultation. No one has yet found a crystal ball
Cost and backward Performance metrics are being down-played. The ghost of my friend Dr Chris Sier will be turning in his grave to hear of such on value for money. It is of cause to remember the leakage of performance through costs charged to funds that aren’t disclosed (transparency is needed). It is of course worth building up a library of information on the capacity of certain providers to deliver more than average, but it is not everything, or we would only back Man Utd for the premier league.
Streamlined service quality metrics comparable with other markets. This is slam on. There is no point in reckoning an admin or member communication service good compared with others among workplace or wealth pensions. We need to be able to compare them with what is state of art in each service and determine whether that we are getting is value for our money.
Comparing providers against a “benchmark” – which I take to be a “commercial market comparator“. This is one that AgeWage has run with Hymans Robertson. It gives a composite performance in terms of unit performance, volatility and it is created from returns from current indices and historic ones from Morningstar going back to the 1990s. We must get away from comparing with favoured rivals and towards benchmarks like ours. We will discuss how the baskets can work as we have been doing this 8 years now.
The FCA gives us an explanation of
Who this is for?
We encourage firms operating contract-based workplace pensions, their IGCs and GAAs, and the trustees of trust-based schemes to respond to this consultation. We welcome feedback from:
- firms operating contract-based workplace pensions
- IGCs and GAAs
- trustees and sponsors of trust-based schemes
- DC pension scheme savers and beneficiaries
- pension scheme service providers, other industry bodies and professionals
- employers
- civil society organisations
- consumer organisations / representatives with an interest in pensions capability / financial capability
- pensions administrators
- any other interested stakeholders
This is where I think we are a little mystified. This stuff will not be coming available to these stakeholders till 2028 which will be five years after the idea was brought to life by a past pension minister. By then we will have a different world for pure DC , we will have CDC and DC schemes will have default pensions for those not opting for their own pathway (annuity, drawdown, cash-out). There will be fewer bigger schemes as commercial figures hone in on £10bn in 2030 and £25bn five years later.
Next Steps
We are asking respondents to reply to the FCA and the Pensions Regulator (TPR), who will share responses with the Department for Work and Pensions (DWP).
The end point of this work will be DWP, the intermediaries will be FCA and TPR. That notes its origin with Laura Trott – the pension minister in 2023. I fear it does touch the sides of His Majesty’s Treasury.
Hello Henry,
…A New Way forward…
Extra to the above, I thought I would drop you the link to the following Citywire article in case you haven’t seen it:
https://citywire.com/new-model-adviser/news/treasury-has-limited-grasp-of-private-credit-risks-lords-warn/a2481522
In particular the following paragraphs:
Concerns over pension fund and insurer allocations to private credit were also lodged in the inquiry, as these institutions are major providers of capital to the sector.
The Lords criticised HM Treasury for what it described as a ‘limited grasp’ of the financial stability risks and urged authorities to move more quickly to improve data collection and oversight.
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This seems particularly relevant in regard to the Chancellor’s eagerness to ease financial regulations in regard to the rush for growth.
PS: another good reason to retain the House of Lords.
Kind regards,
Tim Simpson
That Citywire article is behind a subscriber wall.
The full report is at
publications.parliament.uk/pa/ld5901/ldselect/ldfsrc/235/23502.htm
We may agree to disagree whether the Lords, and this particular Committee, is worth retaining, Tim.
http://www.theguardian.com/politics/2025/mar/12/peers-working-for-city-firms-dominate-lords-panel-scrutinising-financial-sector
As for Citywire’s selective reporting of the report, that’s why I posted a link to the whole report, which if it’s so relevant is either worth reading in its entirety, or not.
I leave interested parties to draw their own conclusions to these particular exchanges in oral
evidence to the Committee, which seem the basis for Citywire’s selective reporting:
Lords Committee: “During the oral evidence session with the Committee, HM Treasury did not reassure us that it has a firm grasp on the emerging issues related to private markets and their potential impact on financial stability. (Paragraph/Question 181)”
Relevant Witnesses were Lucy Rigby KC MP, Economic Secretary to the Treasury and City Minister; Lowri Khan CB CBE, Director of Financial Stability, HM Treasury; and Daniel Rusbridge, Deputy Director for Personal Finances and Funds, HM Treasury.
Q181
Lord Grabiner: I have a couple of points that I would like to ask you about. First of all, arising out of Lord Sharkey’s question, in terms of what I would call plan B, which is in anticipation of another horrible GFC on a worst-case scenario, can we assume that there is a continuing dialogue between the Treasury and the regulators, and that you are not exclusively reliant upon the regulators to blow the whistle or let the red lights flash in the event of an anticipated similar catastrophe?
Lucy Rigby: As to the first point, you can certainly assume that there is a continuous dialogue, which is, I hope, entirely as you would expect. As the Treasury, we have a role in overseeing things. That is clearly not in the supervisory and granular way that the regulators do, but we would consider ourselves to have an important role in the process, and I say that as to financial stability more broadly.
Lord Grabiner: I hope so.
Lowri Khan: If I can add briefly to that, there are various formal ways in which we have a role, and there are more informal ways in which we have an ongoing dialogue. In particular, the Financial Policy Committee has a Treasury member. They are a non-voting member, but that means that we are present at all the meetings of the Financial Policy Committee and very much in the swim of those deliberations.
We are also present in the global Financial Stability Board as well. We do not just leave it to the Bank and the regulators in those fora. We spend a lot of time on cross-authority dialogue with the Bank, the FCA and the PRA. That is a daily matter. It is not a quarterly meeting for a catch-up. In that engagement, we focus particularly on some of the specific risks as well as on potential policy matters that might be pursued.
Lord Grabiner: That is very good. It is good to know. My other point was touched on by Lord Eatwell, and this will be very close to the Minister’s background as a competition lawyer. We have been told that bank lending through private credit only requires the individual bank to hold 20% of the risk-weighted capital, whereas, if banks lend directly to a company, they have to hold 100% of that capital. I am just an ignorant lawyer, really, but you are a competition lawyer, and you probably know the answer to this question. What is the justification for that discrepancy?
Lucy Rigby: Across the board, there is an acknowledgement that the banking sector as a whole is competitive, which is to the benefit of the wider economy. As to the stipulation that you are pointing to, Lord Grabiner, your suggestion is that it creates an uneven playing field. Is that right?
Lord Grabiner: It encourages banks that want more flexibility on their lending book to lend to the private market. They will be discouraged from lending because they would have to hold so much more capital to justify the loan. What I do not understand is why there is that discrepancy in the first place. There may be some economic explanation, but I am not quite sure what it is. Do you know?
Lucy Rigby: It is right to say that capital requirements right across the board—as you know, there are different requirements that apply to different levels of the stack—are put in place with a view to the size of specific banks and their specific lending activity. You will know that the FPC is reviewing capital requirements, and that review comes on the back of reforms that have been made recently, including to MREL [Minimum Requirement for Own Funds and Eligible Liabilities]. Because of the FPC review and reforms that have been made, there is an impetus for making sure that the banking sector is as competitive as possible, and we recognise that capital requirements are a piece of that.
Lord Grabiner: Finally, if that split of 20% and 100% is accurate, is that a source of concern to the Treasury? Does it give you concern because of the lack of knowledge about what is going on there in terms of potential exposure and potential risk?
Lucy Rigby: Lord Grabiner, I am going to turn to my officials on that. It is not something that has been raised with me in this context.
Lowri Khan: I cannot comment in detail on the specific capital that is held against specific investments.
The Chair: Why can you not comment on it?
Lowri Khan: I am not aware of the specifics. It will be context-specific.
Lord Grabiner: It is a pretty basic point, is it not? You must have thought about this. I hope somebody has thought about it.
Lowri Khan: Yes, indeed. To be clear, the way that risk weightings are applied generally to bank lending is an active area of consideration. There is ongoing work, for example, in the context of the PRA, thinking about how internal models can be made more accessible to smaller banks in particular, so it is definitely an active area.
Lord Grabiner: My question is slightly different. Should we be concerned about the fact that a lot of money is going from banks into what we call private credit? We do not have any visibility of what is going on in that marketplace. At the moment, banks are, presumably, also encouraged to lend more to that marketplace because of the much better risk weighting commitment that the individual bank is confronted with in respect of that lending profile.
Lowri Khan: That is understood. Clearly, we would be concerned if there was anything very distortionary going on.
Lord Grabiner: But you do not know that, or do you?
Lowri Khan: There are several dimensions to this. One is what it means for the safety and soundness of banks. A lot of work is being done in the context of the regular bank stress testing that goes on to ensure that those exposures are being managed.
Lord Grabiner: That goes to the position of the individual bank.
Lowri Khan: Yes, indeed.
Lord Grabiner: The bank is being stress-tested in terms of what its book looks like and, if things go wrong, what is going to happen to the book. What about what is going on outside in terms of the borrowing in that private marketplace?
Lowri Khan: You are right that the stress testing looks at it from the bank’s perspective, but it does consider the bank’s ability to manage its exposures. There has been particular work by the PRA to try to think about how well individual firms are managing their exposures in the round.
Thanks Byron, I have had a number of conversations about private credit and the bank’s involvement and none have been very conclusive. Naomi Rovnick is particularly clued up. https://www.linkedin.com/in/naomi-rovnick-77496043/