It’s been a crazy week for pensions. Nigel Farage’s Reform UK announced it wants to take control of all the assets of 98 council pension schemes and combine them into a £500 billion colossus to “invest patriotically” in British shares and private equity.

Patriotically “buying British” — whether products or financial assets — is the beguiling but mistaken philosophy that led to the roadsides being littered with broken-down Austin Allegros in the 1970s. It is not the answer.

Speaking of the notoriously unreliable lemons that rattled their way out of the state-rescued British Leyland factory at Longbridge 50 years ago, there’s another idea taking shape in the pensions world that looks every bit as bodged.

Regulators are pushing ahead with plans for pension schemes to be scored for value for money, using a traffic light system. Just as food products routinely carry red, amber and green scores for fat, sugar and salt, pension schemes will be required to do something similar.

It sounds promising, in theory. Sixteen million people save in the targeted schemes and have little or no idea whether they are getting a good deal. A system to identify poorly performing schemes could help press them to improve, or to merge with better performing rivals or, at least, alert members to transfer out.

The Financial Conduct Authority and the Pensions Regulator claim that members in lagging schemes could benefit by between £430 million to £1.2 billion after ten years. The cost to schemes would be a mere £29 million to 40 million, they claim. That’s quite a potential prize, then.

We routinely expect Kellogg’s to come clean on how much salt is in its cornflakes. Why shouldn’t we expect a similar level of candour from the insurers and master trusts that run modern-day defined contribution pension schemes?

• ‘Unrealistic expectations’ warning on pension scheme value assessments

But what seems perfectly sensible at a distance becomes deeply suspect when examined in more detail. The big flaws in the proposals are the inevitable doubt over what constitutes value for money, a question mark over the people put in charge of making those judgments, and the staggering complexity of the rules governing it all.

A cornflake’s salt content is a measurable and incontrovertible thing. A pension scheme’s value for money is unknowable till decades into the future. Yes, higher fees might be a price worth paying, but only if the scheme assets more than outpace the higher costs over 50 years.

That has led to regulators agreeing to allow schemes to include assumptions about the future performance of asset classes in their calculations. So-called “future-looking metrics” or FLMs are to be allowed, alongside backward-looking numbers based on that uncheatable thing, actual performance.

There doesn’t seem to be anything in the rules to prevent schemes switching asset allocation to spicier things such as private equity or indeed crypto, plugging some optimistic future return assumptions into their models, and bingo! A scheme in danger of a red or amber rating gets green instead, or even dark green. The policymakers have managed to make things even more complicated by proposing two shades of green.

Worse still, the scoring decisions are to be made not by independent arbiters but the pension schemes themselves. Trustees (and in the case of contract-based schemes run by insurers, scheme governance committees) call the shots. This is a classic case of schemes marking their own homework.

These people want to do right by members but they are not paragons. Who is not going to be tempted to take an optimistic view or make a convenient asset allocation decision rather than endure the shame of labelling themselves as red — a score likely to lead to a scheme wind-up?

Unlike in Australia, where regulators of its more mature superannuation system set the benchmarks against which schemes are measured, Britain is allowing schemes to set their own performance yardsticks.

Pension experts focused on what’s good for members are rightly starting to question some of this. Renny Biggins, a policy official at the Investing and Saving Alliance, applauds the policy goal but says the scale and complexity of what is proposed is “quite simply immense”. He says: “Mistakes will be made, incorrect data will be used, wrong metrics will be reported, wrong assumptions will be made and, ultimately, incorrect [traffic light] ratings will be applied.”

Lisa Picardo, a senior executive at the pensions consolidator PensionBee, likens forward looking metrics to “crystal ball gazing”. She says: “For years, the regulators have rightly constrained projections in mass-market investments because optimistic forecasts can mislead.” Yet now they seemed to be promoting them. She explicitly suggests that they could be used as “a lever for schemes to artificially uplift their scores by including private markets”.

Private assets — both private equity and private credit — are showing signs of serious stress after years of strong returns, yet it is now that regulators think it a good idea for the schemes of ordinary savers to be pressured into pushing deeper into them. Rachel Reeves has, for now, stopped short of mandation, but under the Mansion House accord, City institutions are moving in this direction anyway.

The traffic light proposals, due to come in in 2028, could accelerate that push. Whether that leads to higher retirement incomes in decades to come, or just larger fees for private asset houses, must be open to question. The regulators admit that their proposals could lead to “adverse incentives” and the risk of schemes “gaming the system”, but, for now, seem determined to press on.

This well-meaning project is morphing into a gigantic blancmange. Up to 20,000 employer single-employer pension schemes may have to take part as well as insurers and master trusts. Note, a similarly ambitious project, the pensions dashboard, first proposed by the FCA in 2014, has still not arrived 12 years later. The traffic-light project has a similar feel to it.

Anyone with an interest has until March 8 to make their voice heard in the consultation.

Patrick Hosking is Financial Editor of The Times