The Pension Schemes Act: will the Value for Money (VFM) framework actually deliver for members?
As a professional trustee and governance firm, value for money for our scheme members is never far from our minds. Thanks to the passing of the Pensions Act, it’s likely to be top of the agenda for a great many defined contribution (DC) schemes for the next few years. But will that be for the right reasons?
Responding to the recent Government consultation on the new VFM framework, we welcomed the more joined-up approach between The Pensions Regulator (TPR) and the Financial Conduct Authority and we support the intent behind the proposals. But we have reservations about how the framework will work in practice and whether it will truly lead to better member outcomes or just overwhelm schemes and be dogged by unintended consequences.
Swapping one metric for another
The framework’s ambition of creating assessments that are consistent and comparable is both positive and necessary. It’s widely acknowledged that cost and charges have carried too much weight in scheme comparisons for too long, even though they’re only one part of the value story. Therefore, the colour-rating system which, at least in theory, considers a more rounded picture of a scheme’s attributes, will help to switch the focus away from just one or two metrics.
That’s definitely a positive. However, the proposed framework gives substantial weight to backward-looking (what performance has been), and the more controversial forward-looking (what performance you can ‘expect’) metrics when determining a scheme’s final colour-rating mean investment is a dominant force in the assessment.
Meanwhile, “value delivered from services” (more subjective elements such as administration and engagement) can’t improve a scheme’s score; it can only reduce it where services are judged to be poor.
Meanwhile, the proposed service-related metrics raise their own questions. Do they cover the right areas (for example, retirement support isn’t included at all)? And do they capture what ‘good service’ looks like from a member’s perspective (are expression-of-wish forms really a good proxy for engagement)?
So, does the framework genuinely encourage a holistic view of value or does it simply replace one over-emphasised metric (cost) with another (investment performance)? And if investment is – or becomes – the lynchpin, do we risk unintended consequences such as everyone herding towards the same handful of ‘safe’ solutions – leaving members with a lack of genuine choice and reducing innovation over time as all schemes huddle around the median.
The stakes are high
There will be serious consequences for any scheme, regardless of size or structure (including own trusts), that receive an amber or red rating. Either of these will necessitate evasive action and, in the case of red, force consolidation and wind-up. This makes the VFM assessment a high-stakes game, especially amongst the large commercial master trusts and workplace group personal pension (GPP) providers.
But it’s not just the risk of wind-up; during the 2026 Pensions Bill’s journey through Parliament, the Lords added an amendment that would allow TPR to exempt schemes from complying with the scale test (the requirement to have £25bn assets in the main default by 2030) if the scheme can demonstrate it’s providing good value.
Despite being a cornerstone of the “big best” drive towards mega funds, the scale target always felt rather arbitrary. So, if the agenda is truly about outcomes, this exemption feels like the right approach.
But if the outcome of the annual assessment effectively determines which schemes live and die each year, the metrics (and the assessment process behind the VFM framework) must be absolutely right.
And the work is vast
The consultation also aims to balance “the benefits to savers with the administrative burden on providers.” In its current form, we think the proposals may still be some way from achieving that equilibrium.
Get this right and the benefits to savers are clear: poorly performing schemes are identified and exited (with members being moved to better alternatives), whilst all schemes are incentivised to “up their game” to avoid an amber or red rating. This, in turn, will raise standards across the market. The simplicity of the colour-ratings, and the requirement for schemes to publish their rating, will mean that members (and advisers, employers and anyone else who cares to look) should be able to compare and hold their schemes to account. This is all, unquestionably, a good thing.
But the administrative burden will be heavy. The volume of data that needs to be gathered, validated and assessed is vast. Some schemes are using this year’s assessments to dry run data collation and test for gaps and pinch points before the new framework comes into play in 2028. The alignment of reporting dates – while helpful for like-for-like comparisons -could also be challenging for large providers that will need to make data available across their master trust, (potentially multiple) workplace contract-based schemes and own-trust clients at roughly the same time (albeit own-trust schemes first come into scope slightly later).
Although it will all become more automated and familiar to us the more we do it – much like the Chair’s Statement did – the cost and resource required to comply will be significant, at least initially. The risk is these costs are passed on to members via increased charging or trustee/provider focus is shifted towards compliance and away from making genuine, tangible improvements to their schemes.
Final thoughts
The Pension Schemes Bill 2026 is a seismic piece of legislation and the VFM framework is undoubtedly a positive step in principle. But the details will matter. If the framework over-weights certain metrics, creates cliff-edge consequences off the back of a single annual score or imposes a heavy recurring data burden, it risks adding cost and complexity without delivering the improved outcomes members need.
As the regulations and guidance take shape, trustees and providers have an opportunity to push for measures that reflect what value really means to members and shifting the dial in delivering good outcomes.
If you’d like to discuss what the proposals could mean for your scheme, or how to prepare for implementation, we’d be happy to talk.
