Currently, those running workplace pension schemes have to assess whether their schemes are value for money and publish annual reports. But they do it in different ways and at different times, so there’s no consistent approach allowing savers and their employers to compare their scheme with others. This is about to change.

The Government and regulators are developing a new Value for Money Framework, with the help of the pension industry, for workplace pensions. This will provide a consistent and transparent way to compare pension schemes and will be introduced from 2028. While the detail is technical, the idea behind it is relatively simple – pension schemes should be judged not just on how much they charge, but on the overall value they provide to the people saving into them.

For savers, that matters. Your pension is likely to be one of the biggest financial assets you build up over your working life. Small differences in investment performance, charges, service and governance can make a meaningful difference over the decades, including potentially a higher retirement income.

What does value for money mean?

In everyday life, value for money does not necessarily mean choosing the cheapest option. A winter coat that costs a little more but lasts for years may be better value than one that has to be replaced after one season. In theory, the same principle could apply to pension schemes.

For many years, pension value has often been viewed through the lens of cost. Charges matter, and should be fair and transparent, but they only tell part of the story. More important is investment performance over the longer term – the ability to grow the money you’ve paid into your pension.

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Good scheme governance and quality of services are also important. The new framework creates a more holistic and consistent view of a pension scheme’s value than just charges. This has three metrics – investment performance, costs and charges, and quality of service. Those running workplace pension schemes will need to keep track of these, plug the thousands of data points into a new online tool, still in the process of being built, then assess their scheme’s performance, compare it to other schemes, apply a scheme rating and then publish their results, all in within a prescribed timeline. This will show whether schemes are delivering for savers, helping them to build better retirement incomes.

Why this matters for pension savers

Most employees are now automatically enrolled into a workplace pension. This has been a major success, bringing millions more people into pension saving, with the employer choosing their pension provider. But as pension savers have not actively chosen their scheme, and may not feel confident engaging with it, strong governance, oversight and accountability become even more important.

If implemented well, the Value for Money Framework could help shine a light on whether schemes are doing their best for members. The Framework will develop a consistent and comparable benchmark, against which all schemes can be compared. It will mean weaker, poorer value arrangements will need to improve, with the worse performing schemes forced to move pension savers into better-run, better-governed value for money schemes. And, ultimately, improving retirement outcomes.

Getting the framework right

The ambition behind the Framework is the right one. Every pension saver should be saving in a scheme that is well run, has good investment performance, is fairly priced and gives them a fair chance of building a decent income in retirement.

Aegon believes the first year of the Framework (2028) should be treated as a ‘true test’ phase. The largest schemes should submit the data to carry out the assessments, apply a rating but all behind closed doors – for the regulator’s eyes only. This would unearth any issues, allowing the process, the data and the technology behind it to be tested properly before any information is made public. This is not about delaying change – it is about making sure the framework works as intended from the start, giving confidence to all those involved. The aim is to ultimately improve outcomes for savers, so the process must be credible from the outset.

What should savers do now?

For now, savers don’t need to take any immediate action. It will be up to those running your pension scheme to do all the heavy lifting. But it’s a useful reminder to check in on your pension from time to time.

Start by finding out where your pensions are, how much you and your employer are paying in, where your money is invested and how your funds are performing. Check whether your investment choice still feels right for your age and retirement goals, and what charges apply. If you have several pension pots from previous jobs, it may also be worth considering whether bringing them together could make them easier to manage, although this will not be right for everyone and you should check carefully before making changes.

It’s also worth remembering that value for money is only one part of retirement planning. How much you save, how long you save for, and when you plan to retire will all play a major role in the income you may have later in life.

For millions of people, pensions can feel distant and complicated. A well-designed Value for Money Framework should help provide reassurance for savers even when they are not closely engaged with their pension, by making the system work harder on their behalf.

But for it to succeed, it must be introduced carefully, tested properly and focused firmly on the people whose savings are at stake.

Kate Smith is head of pensions at Aegon UK