Marvin OnumonuSacker & Partners LLP (Sackers) has released the results of a recent survey looking at industry views on the proposed Value for Money (VFM) framework for workplace defined contribution (DC) pensions.
The consultation was put forward last month by the Department for Work and Pensions (DWP), the Financial Conduct Authority (FCA) and the Pensions Regulator (TPR).
When asked if they were confident the new VFM framework would improve outcomes for members, 5% of respondents said they were very confident and 52% fairly confident.
However, 43% said they were not at all confident.
On whether their own schemes would be rated as offering value for money, 19% were very confident, 49% fairly confident, 13% not at all confident and 19% selected ‘other’.
Andy Lewis (pictured), partner at Sackers, said: “The new DC VFM framework is intended to shift focus away from costs and charges to a more holistic assessment of overall value for money.
“The ultimate goal is to improve member outcomes. Feedback on the new framework suggests there is still some work to do to persuade both the industry and pension savers that the proposed VFM framework will achieve this.
“The consultation sets out an extensive set of required metrics for assessing value, some elements of which could be interpreted in different ways, while other aspects will be intrinsically hard to quantify.”
Lewis added: “Alongside conducting a rigorous assessment of their VFM, schemes will also have to report transparently on the results and, where applicable, take prompt and specific action if their scheme is not up to scratch.
“With VFM assessments scheduled for 2028, it is important that schemes and service providers take steps now to ensure they are well placed to carry out the first VFM assessment and achieve good ratings.
“The consequences of not providing VFM are significant. Underperforming arrangements falling into the ‘not value’ amber and red categories will be required to take corrective action or, in some cases, exit the market altogether.”
He said: “Early warning of potential assessment outcomes will therefore be vital, as the available timescales for fixing things are likely to be tight.
“In contrast, for those DC arrangements that do perform well, achieving dark green or green ratings, the framework may provide some external validation.”
Lewis added that it is generally accepted that having a more rigorous, structured and transparent way to assess value for money in defined contribution schemes is a step forward.
However, he pointed out that this will mean a lot of implementation work for the industry, which could bring significant costs.
He highlighted that because the VFM framework is intended to be technical and driven by data, the rules around detailed metrics will be key.
Lewis also noted that there is a fine balance to be struck, with the survey showing mixed views on the current proposals.
He said it is important to make sure the final framework delivers results that are genuinely useful for schemes, employers, the industry and pension savers.
Lewis added that with the level of cost and time involved, some are already asking if VFM itself could end up not being value for money.
The consultation will close on 8th March.
