{"id":378587,"date":"2026-01-19T15:48:11","date_gmt":"2026-01-19T15:48:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/378587\/"},"modified":"2026-01-19T15:48:11","modified_gmt":"2026-01-19T15:48:11","slug":"value-for-money-back-under-the-spotlight-employee-benefits-compensation","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/378587\/","title":{"rendered":"Value For Money Back Under The Spotlight – Employee Benefits & Compensation"},"content":{"rendered":"

David James\u2019s articles from Travers Smith LLP are most popular:<\/p>\n


\n within Employment and HR topic(s)
\n in United Kingdom
\n with readers working within the Advertising & Public Relations industries <\/p>\n

Travers Smith LLP are most popular: <\/p>\n


\n within Environment topic(s) <\/p>\n

The Financial Conduct Authority (FCA) and the Pensions Regulator
\nhave issued a new joint consultation<\/a> on their long-awaited value for
\nmoney (VFM) framework for workplace defined contribution (DC)
\npension schemes.<\/p>\n

The revised plans aim to take effect from 2028 and follow
\nindustry criticism of the FCA’s original proposals issued in
\n2024. The Regulators have softened some measures, but the core
\nprinciples stand. The Regulators remain focused on improving
\ntransparency, comparability and competition in the pensions
\nsector.<\/p>\n

We set out below:<\/p>\n


\nthe background and scope of the new regime;
\n
\nan overview of how the VFM framework will operate;
\n
\na commentary of how the proposed framework has changed since
\nthe FCA’s earlier consultation; and
\n
\ndevelopments to watch out for in preparing for the new
\nregime. <\/p>\n

1. Background<\/p>\n

The FCA consulted on a VFM regime in relation to contract-based
\nschemes in 2024 (the “2024
\nConsultation”, see WHiP Issue 111<\/a> for more on this). The Pension
\nSchemes Bill introduces a power to make regulations to introduce
\nthe VFM framework for trust-based occupational DC schemes (see WHiDC: Pension Schemes Bill special<\/a>).<\/p>\n

2. Which schemes will fall in scope?<\/p>\n

The VFM regime will apply to default arrangements of workplace
\nDC pension schemes \u2013 i.e. the default strategy of qualifying
\nauto-enrolment (AE) schemes and legacy
\n“quasi-defaults” which predate AE.<\/p>\n

Executive Pension Plans and Small Self-Administered Schemes will
\nbe excluded from the framework. Exemptions will also be available
\nfor contract-based arrangements closed to new employers that are
\nundertaking a transfer of all members to another arrangement and
\ntrust-based schemes that have notified the Pensions Regulator that
\nthey have commenced wind up.<\/p>\n

3. How will the VFM framework operate?<\/p>\n

Torsten Bell, the Pensions Minister, describes<\/a> the framework as “being
\nstraight with people and making sure people’s savings work as
\nhard as they did to earn them”.<\/p>\n

The Regulators state four aims:<\/p>\n


\nConsistent measurement and disclosure \u2013
\ntrustees and firms must measure and publicly disclose investment
\nperformance, costs, and service quality using metrics designed to
\nassess VFM effectively.
\n
\nObjective comparison \u2013 those responsible
\nfor oversight (trustees for trust-based schemes, and independent
\ngovernance committees (IGCs) and governance
\nadvisory arrangements for contract-based schemes) can assess
\nperformance against the market on a consistent, objective
\nbasis.
\n
\nTransparency of outcomes \u2013 assessment
\nresults must be publicly disclosed.
\n
\nAction on poor value \u2013 trustees and
\nfirms must take specified actions where an arrangement is assessed
\nas not delivering VFM. <\/p>\n

The assessment process will involve three steps:<\/p>\n

\"1733118a.jpg\"\/<\/p>\n

Employers will have a central role in the regime. The Regulators
\nintend that schemes will provide them with the information to
\nselect arrangements that deliver long-term value, leading to better
\nvalue pensions, without savers themselves having to take
\naction.<\/p>\n

4. What’s changed in the latest consultation?<\/p>\n

The fundamentals of the new framework remain unchanged from the
\n2024 Consultation. Schemes must publish key metrics every year,
\ncovering investment performance, asset classes, costs, charges, and
\nservice. Trustees and providers will need to assign a VFM rating to
\ntheir default arrangement(s). Underperforming schemes face
\nconsequences \u2013 e.g. taking steps to improve, notifying
\ncontributing employers of poor performance, closing to new business
\nand\/or ultimately transferring members elsewhere.<\/p>\n

The revised framework, though, proposes a more streamlined and
\nnuanced approach. In several respects, it is designed to be more
\nobjective, and more accommodating of innovative investment
\nstrategies:<\/p>\n

1. Forecasting investment performance:<\/p>\n

The most notable new requirement is the inclusion of
\nforward-looking metrics. Rather than focusing solely on past
\nperformance, schemes will need to set out expected net returns and
\nrisks over the next ten years. Schemes will be able to decide their
\nown bespoke methodology and assumptions when calculating these
\nmetrics (tailored to the scheme’s chosen investment
\nstrategy).<\/p>\n

Guardrails will apply to limit the risk of unrealistic or
\ninflated metrics: (i) schemes will need to record, but not
\ndisclose, their assumptions; and (ii) they must also obtain and
\nconsider advice from an appropriate third-party on the
\nreasonableness of the assumptions.<\/p>\n

Comment<\/p>\n

The use of bespoke forward-looking metrics is intended to
\nsupport the Government’s agenda to drive pension scheme
\ninvestment in productive, long term asset classes, and alleviate
\nsome of the potential obstacles to private market investment. For
\ninstance, the Regulators have stated explicitly that they
\n“do not want to discourage trustees and firms from finding
\nways to manage the potential ‘lag’ in returns from assets
\nwith a projected J curve shaped return.”<\/p>\n

A focus on future performance could also reduce the risk of
\nherding towards benchmarks focused on short-term returns. A risk
\nremains that the use of non-standardised forward-looking metrics
\ncould make it harder for employers and savers to compare schemes
\nand could potentially increase the risk of challenge where actual
\nperformance falls short of projections.<\/p>\n

2. Streamlined reporting:<\/p>\n

(a) Past performance and charges: Past
\nperformance will still need to be assessed and reported on three
\nlevels:<\/p>\n


\nGross investment performance (net only of transaction
\ncosts).
\n
\nGross investment performance net of investment charges.
\n
\nGross investment performance net of all costs and charges. <\/p>\n

Notably, one hard edge has been softened. The previous proposals
\nrequired schemes to report 15-year historic data on investment
\nperformance and charges. That has gone. Instead, backwards looking
\ninvestment performance data must be disclosed for periods of 1
\nyear, 3 years and 5 years where available, and 10 years where
\nreasonably practicable to obtain. As for how performance data is
\ncalculated, the original proposal was to calculate based on the
\nannual performance of multiple cohorts of members as they each pass
\nthrough a given point in the retirement journey, aggregating those
\nperformances into a geometric average. In response to feedback, it
\nis now proposed this be changed to consider the average experience
\nof multiple cohorts of members as they pass through a specific year
\nto retirement points (i.e. arithmetic averaging).<\/p>\n

The Regulators have also dropped the proposal to require schemes
\nto distinguish between service costs and investment changes. Both
\nupdates will be a welcome reduction in the reporting burden for
\nschemes.<\/p>\n

(b) Service quality: The 2024 Consultation
\nproposed five service metrics, being (i) secure, prompt, and
\naccurate transactions, (ii) member satisfaction (iii) retirement
\ndecision-making support for members (iv) ability to easily amend
\npensions and (v) supporting members to engage with their pensions.
\nThe Regulators are proposing minor changes to the first two ratings
\nfor record-keeping and assessing member satisfaction. The initial
\nproposal to adopt a standardised member survey will now not be
\nincluded at launch, with work continuing across industry to develop
\none over the medium term. The remaining three metrics will also not
\nnow be required when the VFM framework is launched and will instead
\nbe developed following further consultation with industry. However,
\na new metric will be introduced to require information about member
\nnomination of beneficiaries.<\/p>\n

Comment<\/p>\n

Despite being scaled back, the revised proposals will still
\nimpose a material compliance burden. Slimming down historic metrics
\nmeans less paperwork, but more subjective, forward-looking metrics
\nadd another layer of work and judgement for schemes. Smaller,
\nown-trust schemes may have the most to do with the fewest
\nresources. This could drive further consolidation, with smaller
\nschemes transferring to bigger providers better equipped to
\nshoulder the reporting burden.<\/p>\n

3. Comparison against commercial market comparator
\ngroup:<\/p>\n

Instead of letting schemes cherry-pick three comparison groups,
\nschemes will need to use a single commercial market comparator
\ngroup, drawing from a central data repository. The commercial
\ncomparator group will consist of contract and trust-based
\narrangements that are open to new employers which are either firm
\nor scheme-designed multi-employer arrangements (i.e. no bespoke
\narrangements or single employer trusts).<\/p>\n

Comment<\/p>\n

This approach could reduce the scope for gamesmanship and lead
\nto a more complete, objective and consistent approach to measuring
\nvalue (provided the central data set is efficiently kept up to
\ndate, is robust and includes sufficiently granular detail on the
\nscheme specific context for that data).<\/p>\n

4. Four-point ratings system:<\/p>\n

The Regulators are also proposing a new, four-tier
\n“RAGG” rating (rather than the three tier “RAG”
\nrating proposed originally). Adding “light green” and
\n“dark green” above “amber” and “red”
\noffers welcome nuance, giving employers and savers a more granular
\nview. Schemes rated amber or red will be barred from taking on new
\nbusiness, and red cases must transfer members elsewhere if that is
\nin their best interests. Amber rated schemes will be required to
\nprepare and submit an improvement plan setting out how they will
\nachieve a green rating with specified timescales for prescribed
\nactions or set out other arrangements such as a transfer of members
\nto a better value arrangement. Few arrangements are expected to
\nattain a dark green rating.<\/p>\n

\"1733118b.jpg\"\/<\/p>\n

Comment<\/p>\n

More nuanced ratings may mitigate the risk of cliff-edges and
\nherding toward uniform investment strategies, where schemes can
\navoid “standing out from the crowd”.<\/p>\n

5. What happens next<\/p>\n


\nFeedback to the consultation: The joint
\nconsultation closes on 8 March 2026. It includes draft rules and
\nguidance for contract-based schemes. The VFM framework will apply
\nto trust-based schemes through regulations made under the Pension
\nSchemes Bill currently before Parliament. Responses to the
\nconsultation will inform both the development of these regulations
\nand the draft rules and guidance for contract-based schemes.
\n
\nFurther engagement: The FCA plans to offer
\nroundtables and stakeholder events to discuss practical aspects as
\nthey develop the framework. The Government intends to consult on
\ndraft regulations to implement the VFM framework for trust-based
\nschemes and the Pensions Regulator will consult on any changes to
\nits Code of Practice or guidance. The FCA is also likely to
\nundertake a further consultation.
\n
\nImplementation: Final rules will be confirmed
\nonce the Pension Schemes Bill receives Royal Assent. The Regulators
\nare currently expecting that the first VFM assessments will be
\nrequired in 2028. In the meantime, workplace DC providers and
\ntrustees and employers with DC or hybrid schemes should monitor
\ndevelopments in the regime, consider responding to the consultation
\nand start reviewing data. <\/p>\n

The content of this article is intended to provide a general
\nguide to the subject matter. Specialist advice should be sought
\nabout your specific circumstances.<\/p>\n","protected":false},"excerpt":{"rendered":"David James\u2019s articles from Travers Smith LLP are most popular: within Employment and HR topic(s) in United…\n","protected":false},"author":2,"featured_media":378588,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[59,57,58,50,56,54,55],"class_list":["post-378587","post","type-post","status-publish","format-standard","has-post-thumbnail","category-united-kingdom","tag-gb","tag-great-britain","tag-greatbritain","tag-news","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/378587","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=378587"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/378587\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/378588"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=378587"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=378587"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=378587"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}