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.