If you’re saving into a workplace pension, you’ll have no idea whether your retirement savings are being managed well or badly. The costs might be reasonable or extortionate. The investment strategy might be serving your interests or someone else’s. Your trustees might be making sophisticated long-term decisions or simply ticking compliance boxes. You have no way to tell.
The UK pension system has evolved into a complex web of schemes with managers, platforms, and intermediaries, each pursuing their own interests. The system works remarkably well—for everyone except for the saver.
There is, however, an opportunity emerging for that to change. Regulators are developing a Value for Money framework that promises to make pension schemes transparent and comparable, enabling you to see whether your scheme is genuinely serving your interests or just extracting fees while delivering mediocre outcomes.
This is potentially transformative. But there’s a real risk that the framework will be watered down so that nothing gets better.
What Actually Matters for Your Retirement
Investment systems think-tank, New Capital Consensus, has spent years researching how the UK investment system actually works. It’s often heard how money should be invested, but witnessed something else.
What they found is troubling. Despite the UK having one of the largest pools of pension savings in the developed world—roughly £400 billion in defined contribution schemes like yours—we achieve relatively low returns compared to other countries and invest minimal amounts in productive UK businesses, infrastructure, and innovation.
Your money could generate both economic growth and better retirement outcomes. Improving conditions for savers and the places they choose to retire in.
The problem isn’t that your pension scheme is run by bad people. It’s that the system creates incentives that push even well-intentioned trustees toward strategies that serve institutional interests rather than yours. Your scheme is winning prizes for box-ticking compliance, benchmark hugging, and cost minimization—none of which actually translate into the retirement income you’ll need thirty years from now.
Five Questions Your Scheme Should Answer; your Effectiveness Screen
New Capital Consensus have developed something called an Effectivity Screen—five straightforward questions that reveal whether your pension scheme is genuinely working for you or just working to keep the regulators off its back:
- Does your scheme match its risk assumptions to your actual time horizon?
If you’re many years from retirement, the “risk” you face isn’t the pot’s value going up and down this week or month —it’s having insufficient income when you retire. Yet most schemes de-risk you away from growth as you grow older, so that you’re holding defensive investments when you’re middle aged. Your scheme should explain whether it’s managing your risks or its own.
- Does your scheme measure what actually matters?
Most schemes use risk metrics designed for professional traders managing daily positions—things like “value at risk” and “maximum drawdown.” These are misleading for long-term retirement savings. Your scheme should be measuring whether it’s on track to provide adequate retirement income and investing to beat inflation and providing assurance you have income if you live longer than average
- How much of your money is invested in the UK economy you depend on?
The nation’s pensions for the elderly are secured by the productivity and resilience of the UK economy—that’s what determines employment, wages, tax revenues, and the viability of state pensions and pension credits. Yet the typical UK pension scheme invests roughly 70-80% in international markets, predominantly shipping off across the pond to buy shares and the debt of US technology companies using global financial services. Your scheme should explain how its strategy balances prioritise international diversification against supporting the domestic economy your retirement depends on.
- Is your money creating new productive investment or just following everybody else’s?
There are two fundamentally different types of investment. Primary investment creates new productive capacity—funding startups, building infrastructure, enabling business expansion. Secondary investment trades existing securities on stock markets—necessary for liquidity but not creating new economic value. At least 95% of UK pension capital is deployed in secondary trading. Your scheme should disclose what proportion of your money actually supports new productive investment versus just following the herd.
- Is your money in genuine risk-bearing investments matched to your time horizon?
Young workers with multi-decade time horizons should be overwhelmingly invested in risk-bearing assets—equity in productive businesses, direct infrastructure, venture capital—that generate real returns over the long-term. Instead, many schemes hold substantial defensive positions in cash and government bonds even in what they call their “growth” allocation. They are shielding you from short-term volatility when you have decades to diversify through while sacrificing the returns you’ll desperately need.
Why This Matters Now
Regulators are finalizing the Value for Money framework that will determine how your scheme gets measured and compared to others. If that framework focuses only on costs and past performance, schemes will compete to have low fees and benchmark-hugging strategies that protect trustees from criticism while delivering you mediocre outcomes.
But if the Value for Money framework incorporates forward-looking questions about strategy, governance, and effectiveness—schemes will face pressure to genuinely serve your long-term interests rather than satisfy a compliance test.
The difference is enormous. Under a cost-focused framework, your scheme wins the compliance cup by cutting costs, even if that means eliminating the investment capabilities needed to evaluate productive opportunities.
Under a framework that focusses on schemes investing effectively, your scheme succeeds by demonstrably serving your retirement needs. This means maintaining the governance and stewardship capabilities required for intelligent long-term investment.
What You Can Do
You probably can’t directly influence regulatory frameworks. But you can ask your pension scheme these five questions. If your scheme can’t answer them clearly, or if the answers reveal it’s taking decisions for compliance rather than your retirement security, then you’ve learned something and set your scheme’s fiduciaries thinking.
The UK pension system manages your money, but it doesn’t always serve your interests. Getting schemes to serve your interest means taking a five step Effectivity Screen. The Effectivity Screen provides transparency. Whether regulators will require schemes to use it—or whether schemes will voluntarily adopt it to demonstrate genuine value—remains to be seen.
What’s certain is that without transparency and proper incentives, the system will continue doing what systems do: serving itself rather than the people it’s meant to serve. Your retirement security is too important to leave to opacity and institutional convenience. Demand answers to these five questions, your Effectiveness Screen. You’re entitled to them.
