Industry Pushback Against Pension Value Rules

The government’s Value for Money (VfM) framework for defined contribution pensions is facing significant industry pushback. The new rules aim to help savers compare pension schemes and protect them from poor performers by issuing colour-coded ratings, from ‘red’ to ‘dark green’. Schemes rated ‘red’ will be closed and transferred in bulk.

Industry Concerns Over Performance Metrics

A major point of contention is the use of forward-looking performance metrics. Many industry groups initially supported including forecasts but now worry they will be overemphasized, potentially painting an overly optimistic picture of returns, especially for funds with private market investments.

The Society of Pension Professionals has proposed capping the weight of future projections at 30% in a scheme’s overall rating. “Without the right guardrails, it’s all too easy to paint an overly optimistic picture of returns,” the group stated. “We don’t think forward-looking metrics belong anywhere near a genuine value-for-money assessment.”

Ruari Grant, head of policy at TPT Retirement Solutions, echoed these concerns, warning that schemes should not “mark their own homework.” He stressed that assessments must be based on “objective evidence of member value rather than subjective interpretation or narrative.”

Implementation Timeline Under Scrutiny

The timing of the VfM framework’s rollout is also a source of debate. While the first reporting period has been delayed until 2028, some providers fear the assessments could cause commercial and reputational damage before the system is fully tested.

Kate Smith, head of pensions at Aegon, noted that “all eyes will be on the published data and ratings.” She warned that inconsistencies in how trustees interpret their data could worsen the situation, leading to information being “taken out of context.”

The Pensions Administration Standards Association has called for a genuine “dry run” in the first year. This would allow schemes, trustees, providers, and regulators to test the data, address inconsistencies, and build confidence in the methodology before any ratings are made public.

Emma Furlonger, managing director at Standard Life, agreed, stating that “getting the foundations right will be critical.” The final framework, she added, should prioritize meaningful metrics and avoid unnecessary complexity that does not improve outcomes for savers.

The Investing and Savings Alliance emphasized the need for consistency. “The industry and regulators need to use the implementation period to make sure everyone is working to an industry-wide approach before data is made public and those consequences take effect,” said Renny Biggins, head of policy for the group.

The framework’s potential impact on investment strategy has also drawn attention. Mark Futcher, head of DC and financial wellbeing at Howden, warned of unintended consequences. He pointed to a similar system in Australia. That regulation, he said, caused schemes to herd into a narrow range of investments. It also suppressed innovation and led to worse outcomes for savers.

Anthony Ellis, head of DC trust consulting at Hymans Robertson, agreed that balance is critical. He noted a risk that the framework could encourage schemes to converge on similar approaches. This must be offset, he argued, with innovation. A spectrum of investment strategies must remain available to members.

Ensuring Member-Centric Outcomes

Industry experts stress that the system must keep DC savers at its centre. This means focusing on clarity and consistency. It also means avoiding excessive reporting burdens for schemes and providers. John Flynn, co-chair of the Association of Member Nominated Trustees, warned against complexity. He said members simply want to know if they have a good or poor pension product.

Helen Forrest Hall, chief strategy officer at the Pensions Management Institute, echoed this sentiment. She warned against confusing the measurement of value with the delivery of value. The focus must remain on better outcomes for savers, she added, not on more administration for schemes.

The definition of “value for money” itself is a subject of debate. Louise Davey, trustee director at the Independent Governance Group, argued that value extends beyond performance and charges. She highlighted the quality of service and whether members can understand and act on their retirement choices as fundamental.

Dr Amanda Cooke, chair of the SPP’s Financial Services Regulation Committee, also cautioned against a one-size-fits-all approach. The framework, she stated, must recognise different scheme structures, member needs, and retirement strategies. The costs of compliance must also remain proportionate to the value it delivers.

Despite the concerns, many acknowledge the project’s ultimate goal is worthwhile. Helen Ball, a partner at Sackers, welcomed the progress towards a more consistent assessment of value. She called for further clarity on the final requirements to allow schemes to prepare adequately.

Patrick Heath-Lay, chief executive officer at People’s Partnership, stressed the need for partnership. Government, regulators, and industry must work together, he said, to build and implement the changes in time. Schemes need confidence to make long-term investment decisions, he concluded.

Industry Calls for Clarity and Consistency

Industry respondents emphasized that DC savers must be at the centre of the developing framework. This requires a focus on clarity and consistency to keep the system efficient and avoid excessive reporting work for schemes and providers. The framework should not become a box-ticking exercise or drive schemes toward a one-size-fits-all approach.