The UK government has proposed a phased implementation of the Value for Money (VfM) framework.
Under the phased rollout, master trusts, large single-employer trusts with 50,000 or more members, and all firm-designed open multi-employer contract-based pension funds will undergo full VfM assessments and receive ratings in 2028.
Smaller single-employer trusts, as well as legacy and bespoke arrangements, will initially only submit data to regulators, with no public reporting of results. From 2029, all in-scope schemes will be subject to full disclosure, assessment and ratings, along with any associated consequences.
The framework will require defined contribution (DC) workplace schemes to disclose and assess standardised performance metrics across three key areas: quality of service, investment performance and costs and charges. Where a scheme falls short, the framework will require poorly performing arrangements to improve or ultimately protect savers by transferring them elsewhere.
This is expected to raise standards across the market and ensure savers are getting the best value out of their investments. The government estimates that currently, over a five-year period, there can be up to a 55% cumulative difference between the highest and lowest performing pension funds, underscoring the importance of transparency and comparability.
Previously, the government proposed that, in the first year of the framework, where relevant, data would be collected from January to December 2027. It now proposes shortening this initial data collection period to July to December 2027. The government believes this will ensure arrangements have sufficient lead-in time and that the Financial Conduct Authority (FCA) rules and Department for Work and Pensions (DWP) regulations are in place ahead of the data collection period.
The government has also previously proposed immediate application of consequences for underperforming schemes. It has now proposed that no formal consequences will apply in 2028 in direct relation to the VfM framework, with consequences, including closure measures, only taking effect from the second assessment cycle onwards.
The move comes as the industry called for a phased introduction of requirements to reduce operational burden, support data quality, and manage implementation costs.
The decision to phase implementation has been branded “pragmatic” by the industry.
Anthony Ellis, head of DC trust consulting at Hymans Robertson, said the move recognises the operational challenges involved in establishing a new industry-wide framework.
Ellis added that while the proposed focus on larger schemes in the first year is sensible, it will be important that the transition to full market coverage remains achievable and proportionate for all providers.”
Damon Hopkins, head of DC workplace savings at Broadstone, said the phased rollout gives providers and trustees more time to embed the new requirements effectively and build trust in the framework.
He said: “The challenge will be ensuring the assessment remains proportionate and robust, with metrics that genuinely reflect the impact on member retirement outcomes and support innovation and investment in assets that can improve long-term returns, and ultimately savers’ financial retirement aspirations.”
Helen Shackelford, partner at LCP, has, meanwhile, warned that it is important to strike the right balance between making timely progress and ensuring the framework is sufficiently developed to avoid unintended consequences across the DC pensions market.
She said: “While we support the objective of improving outcomes for members, it is essential that the framework is proportionate, evidence-based and workable in practice. The new consultation on the topic continues to finesse the framework, and it is positive to see a number of simplifications being made, in response to LCP and industry pressure.
“Whilst it is positive that automatic consequences of the outcomes of assessments will not be applied in the first year, if those results are published, they will still impact providers, schemes and the industry as a whole. The government’s broader policy direction is already clearly focused on consolidation, supported by a range of existing initiatives. The VFM framework should focus on transparency and better member outcomes, rather than acting as an additional mechanism to force consolidation.”
