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Driving Value for Money in defined contribution pensions

This is a joint discussion paper (DP) by The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA).

We are inviting views on developing a holistic framework and related metrics to assess Value for Money (VFM) in all FCA and TPR regulated defined contribution (DC) pension schemes (workplace and non-workplace).

Published: 16 September 2021

FCA publications number : DP21/3

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How to respond

We are asking for comments on this Discussion Paper (DP) by 10 December 2021. Please review the questions set out in each chapter (or in the annex) and address your response to one of the following mailboxes. and / or

Or in writing to:

Cosmo Gibson
Financial Conduct Authority
12 Endeavour Square
E20 1JN

and / or

Lisa Leveridge
The Pensions Regulator
Napier House
Trafalgar Place

Please note: as this is a joint discussion paper, all responses received will be shared between both organisations.

What will we do?

We will consider your feedback and publish a Feedback Statement in 2022, setting out your feedback and our next steps.

1. Overview

A focus on Value for Money (VFM) is a key part of ensuring defined contribution (DC) pensions maximise the income savers have at retirement.

In this discussion paper, we invite views on developing a holistic framework and related metrics to assess VFM in all FCA and TPR regulated DC pension schemes (workplace and non-workplace). At this stage, we are focusing on VFM in accumulation.

We aim to promote consistent assessments on VFM, focusing on metrics for the key drivers of VFM to enable meaningful comparisons between schemes.

We will use the feedback to this paper to decide how we can achieve this.

1. Since automatic enrolment (AE) was introduced in 2012, we have seen a dramatic shift in the pensions landscape. Historically, most pension savers had been in defined benefit (DB) schemes, which promised a specific level of income at retirement. Now, 15 times as many private sector workplace savers are accumulating in DC schemes rather than DB schemes.1

2. In DC schemes, retirement income is not guaranteed. It depends on the level of savers’ contributions and the performance of investments. DC savers can only maximise their future retirement income, if the scheme they contribute to delivers ‘value for money’.

3. By ‘value for money’ we mean that savers’ contributions are being well invested and their savings are not eroded by high costs and charges. Other factors also contribute to whether a saver achieves good retirement outcomes and so these should also be included in the concept of ‘value for money’. For example, good customer service to help savers make the right decisions at the right time may make a real difference to how much they contribute and engage with their retirement needs. Good scheme governance also makes a meaningful difference to long-term outcomes.

Building on existing work

4. We have focused for some time on VFM and long-term saver outcomes, and there have been a number of initiatives to encourage improvements in the VFM propositions of schemes. Introducing a VFM framework is intended to complement rather than duplicate these existing workstreams and provide a holistic approach that extends to cover those areas where VFM measures are not currently required.

5. Government and industry have taken steps to reduce pension costs and charges over the past few years. The charge cap has been an important factor in limiting savers’ costs and improved the value for money of DC workplace pension schemes. This is a particularly important protection for ‘double-defaulted’ savers who do not make an active choice about being enrolled or their default allocation. Alongside shifts in investment design, average costs have come down. The Department for Work and Pensions’ (DWP’s) Pension Charges Survey 2020 found that all savers in the qualifying schemes covered by the research were below the cap of 0.75% of a saver’s fund, and the average charge of 0.48% is significantly below the cap.

6. While costs in a workplace context reflect strong competition at the large-scale end of the market, there are persistent cost issues in legacy products and non-workplace pensions.

7. While cost is clearly an important component there has also been an increased focus on the importance of investment performance in creating value, on long-term outcomes and overall value.

8. The DWP has looked at the need for value in the context of scheme consolidation. New measures in October 2021 will introduce a detailed value for member assessment for schemes below £100 million. Schemes that do not offer value must explain what they will do to improve, consolidation being one way to achieve better value for savers over the long term.

9. DWP’s Call for Evidence2 published on the 21 June 2021 moves the discussion forwards to look at savers of medium to large occupational schemes that are not in scope for the VFM assessment, and further incentivising consolidation. Responses to this paper will help to inform this work.

10. More recently, Government, industry and regulators have convened the Productive Finance Working Group (PFWG) to consider how to create an environment in which DC funds can invest in long-term assets. The Group strongly advocated for a shift in focus to long-term value for savers.

11. There is a growing consensus that there needs to be a broader culture shift. Both we and firms need to do more to foster a holistic approach to assessing long term value in pensions and driving good saver outcomes. Transparency over what constitutes value for money is a prerequisite for achieving this.

Making transparency a basis for effective VFM decision-making

12. To enable good value schemes to compete on the quality of their offerings, regulators, industry, employers and ultimately savers must be able to access information that allows them effectively to compare and assess VFM. It is important that there is transparency on the key components of value for money.

13. Therefore, there needs to be a common framework for disclosing this key information, to assess VFM across the pension schemes regulated by FCA and TPR, whether workplace or non-workplace. Availability of comparable information will make it easier for independent governance committees (IGCs) and trustees to compare the VFM their scheme offers. This in turn will drive competition on performance through comparison and benchmarking.

14. While some parts of the pensions industry currently offer value for money, there is an inconsistent approach in different parts of the pensions sector. This may be related to the resources and data firms have made available over time to assess value. For example, the very large workplace scheme pensions market has good data to compare scheme costs. However, even here, industry has identified the need for better use of metrics to assess investment performance, quality of services and scheme oversight to drive a shift to long-term value. Some schemes, especially larger ones, are managed at much lower cost than the industry average, with providers competing primarily on price.

15. This discussion paper explores what a common framework should look like. We propose a framework, building on existing concepts, that looks at value through three lenses: investment performance, customer service/scheme oversight and costs and charges. We will expect schemes to make data on these publicly available. We are seeking views on how to get this framework right, though we also recognise that perfect standardisation is not possible. We propose that this framework is backward looking rather than focused on projections to drive factual comparison.

16. Requiring additional public disclosures would come at a cost and schemes, and their savers, would ultimately bear these costs. Any measures would therefore need to be designed in a way that is proportionate. However, poor value over the longer term is also very costly to schemes and their savers. We want to gather information that will enable us to design requirements that strike a balance between initial costs and long-term savings. Ultimately, we want a system that drives the pensions industry’s focus and resources into ensuring DC pensions offer good long-term investment performance, and higher service standards, at reduced costs and charges. This will enable UK DC savers to be confident that they are maximising their retirement income for every pound they save.

A step towards long term change

17. We want to work towards a framework that allows industry stakeholders to assess and compare pension scheme value on a consistent basis. The intention is for trustees and IGCs to use the framework to compare their scheme with similar schemes to assess their comparative performance. This should help drive future improvements in value through lower costs and charges, improved risk-adjusted investment performance and higher standards of services. It should also enable pension providers to identify services that could most benefit from future investment (to improve quality and/or efficiency), and service providers to compete on better evidenced quality of service as well as cost. We also believe that it is likely to provide information that could be useful for new and existing employers when making decisions about which pension scheme might offer the best options for their workforce.

18. We accept that a common disclosure framework alone will not be sufficient to drive improved value through competition. However, without this public information the ability for IGCs and trustees to accurately compare and assess saver experience and for providers to compete on offering better long-term value is very limited. We also recognise that even taking the first step in providing this improved data will take time, and that establishing an effective common framework that drives value for money across DC pensions is a long-term undertaking.

19. While we anticipate that most savers are unlikely to use any resulting VFM assessments directly to compare workplace pension schemes, we expect this framework to improve saver outcomes as trustees and scheme governance bodies act on their behalf to drive improvements in value. If we conclude that requiring the production of VFM assessments across all pension products is necessary, these assessments would need to be made publicly available so that engaged savers can assess their scheme’s value. More generally, publication may help improve saver engagement with their pension.

Value for money is one of two priority areas in our joint strategy

20. In October 2018, the FCA and TPR published a joint strategy outlining how we will work together to tackle the issues we see facing the sector over the next five to ten years. We said we would pursue VFM throughout the pensions system and intervene where our expectations are not met.

Figure 1 depicts our proposed VFM framework which consists of three core elements

A diagram showing the 3 core elements of value for money: investment performance, customer service and scheme oversight and costs and charges. It shows how consistent disclosure of data on these elements can help drive industry focus on long-term VFM in pensions.

21. This joint discussion paper relates to this priority area, and forms part of a broader discussion about the evolution of DC pensions, including ongoing work to consider how to tackle small pots, consolidation of small schemes, the treatment of legacy savers, and review of charges.

Figure 2 shows an overview of the pensions landscape regulated by TPR and the FCA

A diagram showing a timeline of the value for money regulatory initiatives in DC pensions undertaken by the OFT, FCA, DWP and TPR since 2013. 

We have taken equality and diversity considerations into account

22. We have considered the equality and diversity issues that may arise from our proposals in this discussion paper. Overall, we do not consider that the proposals in this paper adversely impact any of the groups with protected characteristics, ie age, disability, sex, marriage or civil partnership, pregnancy and maternity, race, religion and belief, sexual orientation and gender reassignment.

23. We will continue to consider the equality and diversity implications of the proposals during the discussion period.

Who will this consultation be of interest to?

24. This consultation affects those who are involved in the workplace and non-workplace pensions markets. This includes:

  • occupational pension schemes, pension providers and asset managers
  • the governance bodies of pension schemes, such as trustees of occupational pension schemes, IGCs, and their advisers
  • scheme savers and their advisers
  • saver representative groups

Figure 3 shows previous measures taken by different bodies to improve VFM in pensions

 A diagram shows which DC pensions are in scope of the proposed VFM disclosure framework, and which FCA and TPR regulated pensions are out of scope.


2. Placing our proposals into context

1. There are already existing regulatory requirements and expectations for VFM across both trust- and contract-based workplace pensions schemes.

2. These are relatively high level, broadly requiring trustees, managers and IGCs/ governance advisory arrangements (GAAs) to consider whether a scheme represents value for money.

3. In addition, there are also extensive requirements in place for asset managers to disclose and assess the value for money offered by the investment funds they provide. These funds form the underlying investment components that pension schemes invest in, and therefore their disclosures will form a relevant input into any pension scheme VFM framework.

4. The proposals in this discussion paper build on the concepts used in the existing requirements – to look at VFM through the lenses of investment performance, costs and charges, and other services.

5. Taken together, the measures proposed in CP20/9, TPR’s DC Code of Practice and this joint discussion paper are designed to promote a consistent approach and a common framework for the assessment of VFM across the schemes regulated by FCA and TPR. This makes it easier for savers and those running pension schemes to benchmark against other providers. It may also support the process of introducing other changes, such as consolidation models to deal with small pots in the future.

Existing requirements applicable to TPR-regulated schemes

Regulatory expectations of VFM assessments conducted by trustees of DC occupational schemes are set out in TPR’s DC Code.

TPR also offers some specific guidance to trustees containing a non-mandatory framework on assessing VFM. This guidance recommends comparisons between pension schemes as part of a VFM assessments, although it does not prescribe how this should be done or include any reporting formats.

DWP regulations around driving consolidation of smaller DC schemes will come into force on October 2021 and will require more detailed annual assessments of VFM for schemes with less than £100m in total assets which have been operating for 3 years or longer.

Existing requirements applicable to FCA-regulated schemes

Under current FCA rules, IGCs and GAAs are required to assess prescribed aspects of VFM in reaching their assessments of VFM. These include, broadly, the design of the default investment strategy, whether the firm regularly reviews net investment performance and has taken action to make any necessary changes, core financial transactions, communications, and costs and charges. Similar requirements apply to the assessment of the VFM of investment pathway solutions used for drawdown. The existing rules do not prescribe further how assessments should be conducted nor do they require comparisons with other options available on the market.

In 2020 (CP20/9), the FCA consulted on a detailed framework for scheme governance bodies to assess VFM of FCA-regulated workplace pension schemes and summarize the feedback received from firms. The proposed rules are equivalent to the existing TPR framework for regulated trust-based schemes. The FCA proposes to make final rules in the autumn.

Note: references in this paper to ‘scheme governance bodies’ should be read, where appropriate, as including IGCs and GAAs.

What we are proposing now: developing metrics and benchmarks

6. We propose that schemes should provide further transparency around three key elements of VFM:

  1. investment performance
  2. scheme oversight provided (including customer service levels such as data quality and communications)
  3. costs and charges

7. In Chapters 3-5 we explore each of these further to look how we could design an appropriately calibrated framework for transparency.

8. We propose that such disclosures need to be made on a consistent basis to allow for effective comparison. Getting the standards disclosures right is essential and requires complex considerations.

9. It is also important to consider in what format such data would be disclosed so that it can be used effectively. We think that once data is available market solutions for using and comparing this data will be able to emerge.

Use of data

10, The intention is that our proposals will:

  • better equip IGCs and trustees to provide informed challenges to providers and address poor value
  • promote greater transparency to assist employers, their advisers and (engaged) employees to bring competitive pressure on providers to provide good value
  • allow engaged savers to more effectively choose between products in the non-workplace pensions market, and allow other stakeholders such as saver representative groups and media organisations to provide comparisons between products
  • clarify FCA/TPR expectations, to avoid work being undertaken by firms, IGCs or trustees which adds cost for the saver without contributing significant benefit

11. Our proposals will also provide a baseline for investment performance against which to measure the improvements delivered as a result of the PFWG work on enabling DC schemes.

12. If a framework is established, in due course we would expect scheme oversight bodies, trustees and providers to assess and report on these three key elements on an annual basis.

13. There are a number of different ways to make comparisons, and it’s unlikely that a scheme would be able to compare itself against all other schemes in the market. This suggests there would be value in producing industry benchmarks. For each component of VFM the options range from comparison with a simple benchmark to calculating market-wide figures. The latter would require quite complex data analysis, and there is a question as to whether commercial benchmarks would emerge to allow this comparison or whether regulatory intervention would be necessary to create them.


14. Ultimately, we want to get to an environment where VFM is achieved across all pension products. This paper is focused primarily on assessing VFM in pensions in accumulation, and we have paid particular attention to features of workplace default schemes, given the growth in this market.

15. The investment performance element of our proposed framework is particularly relevant to VFM where savers are paying for the design and ongoing governance of investment strategies, ie workplace defaults and any standardised investment solutions for non-workplace pensions.

16. However, what we learn through feedback from this discussion paper will over time also help us develop proposals for self-select options and for the non-workplace space.

17. Even where savers choose their own investments, for workplace pension schemes, the scheme will have chosen a range of investments to make available and savers choosing their own investments, eg for non-workplace pensions (NWPs) should be interested in how they are doing relative to other options, and what it has cost overall.

18. There are additional challenges to consider in the context of legacy schemes. In FS19/5, the FCA reported that older products and smaller pots in the non-workplace pensions market attract higher charges. It also found that there is sufficient variation between what similar savers are paying to materially affect some savers’ pension pots. Non-workplace pensions are traditionally thought of as a “set and forget” product and the possibility of switching may not occur to many savers. The FCA had concerns that some savers may be invested in products that are poor VFM.

19. This is a complex harm to address. The disclosure of costs and charges, to improve comparability and transparency, should help highlight instances of poor VFM. But some older products have valuable features or guarantees (such as guaranteed annuity rates), which means that switching to a modern product may not always be in the customer’s best interests.

20. One option would be to require firms to disclose a standardised comparison between their existing legacy product and the proposed default, or relative to a common benchmark. Care would be needed to mitigate the risk that customers switch inappropriately and without considering all elements of VFM, including the valuable features and guarantees of some legacy products.

21. In the workplace pensions market, employee benefit consultants (EBCs) play an important role in advising employers on the design of their pension arrangements and may already have in-house frameworks to assess and compare pension schemes. Consistent disclosure of agreed metrics should help improve these comparisons.

22. Standardising disclosure so that non-workplace pension products can be easily compared, both with each other and with workplace pensions, may help drive change. Further consideration will be needed on how to apply a framework where the choice of underlying investments may be very wide and where there may be valuable guarantees and different types of fee structure.

23. Even within schemes, savers may choose to select their funds from the range made available to them rather than investing in the default fund. This would depend on their own assessment of risk tolerance or the likely shape of their retirement benefits.

24. The DWP is proposing disclosure of metrics for the self-select funds offered by workplace schemes in statutory guidance to address this.

Backward vs forward looking metric

25. The proposals in this paper are focused on backward-looking metrics, which can be established as factual.

26. Calculating forward-looking metrics can be challenging and has risks, as has been seen with other policy initiatives such as Packaged Retail and Insurance-based Investment Products (PRIIPS).

27. However, where it is clear that future performance or costs will differ significantly from the past, decision-makers would need to take that into account in considering the VFM of a pension product. We do not explore forward-looking metrics further in this paper but would still welcome views on this.

Taking a long-term view

28. Working towards greater transparency and use of common metrics would represent a significant change for the industry and could only be realised over the longer term. This discussion paper gives us the opportunity to explore views before formalising any concrete proposals for consultation.

29. We recognise that disclosure alone will not resolve questions around value for money in pensions. Those designing and preselecting products, such as firms and employee benefit consultants may not be incentivised to drive long-term value. Equally those making selections on behalf of savers may not have the capacity or capability to bargain. End savers lack of engagement with pensions also has a role to play. These issues are complex and need a concerted effort to be resolved. The TPR and FCA publication on the consumer journey is a further example of how we seek to address these. However, we think transparency is a pre-requisite for further change.

Key strategic priority

30. Delivering VFM in pensions is a key strategic priority for both the FCA and TPR. In developing these proposals, we have attempted to address two interlinked questions:

  1. To what extent should we make clear our expectations for how VFM should be assessed?
  2. Should we establish, or encourage others to establish:
    1. standard metrics for quantifying VFM?
    2. benchmarking mechanisms that enable comparison of the VFM achieved by schemes and/or providers?
    3. standard reporting formats for VFM assessments?

3. Investment performance

The case for disclosing performance data

1. Long-term investment return is clearly a key component of delivering good outcomes for savers.

2. Whilst performance may have little value in predicting future performance, empirical evidence shows that poor investment performance is persistent.

3. Evidence shows comparing investment performance with appropriate benchmarks can also help identify persistent underperformance. The Task Force on Past Performance considered how far information about past performance could be of value to savers. It agreed that the information was of little or no value as an indicator of future performance. The task force concluded that it is unclear whether risk-adjusted superior performance is sustainable over long investment horizons, but empirical evidence shows that poor investment performance is persistent.

4. While we do not think schemes should compete on recent performance in investment returns, we do think having access to investment performance data, which indicates the returns achieved on a scheme’s behalf to date, is important to decision makers in pensions.

5. In the context of a default scheme, the quality of the overall portfolio composition, not just the performance of component parts is important to achieving VFM, bearing in mind the appropriate degree of risk for savers.

6. There are currently several different ways that investment performance is measured and disclosed, making direct comparisons difficult. In Punter Southall’s recent DC Default Strategy Survey, the report noted that “there is no single, specific, consistently applied measure to assess the performance of the default options in the DC market. Providers are using a wide variety of different comparators (peer group sectors, composite benchmarks, cash or inflation linked indices).”

7. New measures in October 2021 will introduce a detailed value for member assessment for schemes below £100 million and a requirement for all trust-based DC schemes to report investment performance going forward. It remains clear that to allow for effective comparisons, the wider market needs a holistic way of measuring performance that allows direct comparison and provides enough information for firms, scheme governance bodies and trustees to make informed decisions about whether they are delivering VFM for savers.

8. Our aim is to achieve genuine comparability for groups of similar savers. Public disclosure of this information will enable judgements to be made as to whether savers’/consumers’ savings are on track and if their scheme’s investment strategy is performing in line with reasonable expectations. IGCs and trustees that see continued underperformance should assess whether their investment strategy needs to change. Comparisons can also raise questions about the asset allocations used in scheme design.

Question 1: Do you agree that consistent disclosure of performance is necessary and could assist better decision-making?

Developing comparable metrics – disclosures net of costs

9. We think that past performance data should be disclosed net of costs and charges because this reflects the savers’ experience of investment return. Gross investment performance may well also be of interest to scheme governance bodies and trustees in assessing whether particular asset classes or investment approaches can deliver greater performance that justifies additional investment costs. However, we think this is of less interest in assessing comparative investment performance and so requiring public disclosure of gross performance would be disproportionate.

10. Requiring disclosures net also means that a range of management and performance fees can be adjusted for, and returns can be compared on a realised basis.

11. The DWP have recognised that, within some schemes, charges for individual funds may vary by employer. This means that different employers investing in identical funds could have different net investment returns. The DWP have therefore stated that those schemes should present net returns in such a way that this difference is made clear.

12. Proposing disclosure net of costs across all schemes would be consistent with DWP legislation coming into force from 1 October 2021, which will require all relevant occupational DC schemes to publish their net investment returns on an annual basis. Net investment return is also one of the factors that must be considered by schemes with less than £100m assets under management (AUM) when carrying out the more prescriptive annual VFM assessment.

Question 2: Do you agree that comparisons should be of net rather than gross investment performance?

Question 3: Do you have any suggestions on how to make disclosure of net investment returns effective given that there may be varying charges for the same funds within multi-employer schemes? For example, displaying a range, or requiring disclosure of each different level of net investment performance.

13. We want to foster a long-term investment culture seeing as many scheme savers will have long-term investment horizons. It is therefore important that performance is disclosed over appropriate periods.

14. The statutory guidance accompanying the DWP’s recent legislation states that returns must be provided over at least one and five years and, ideally, also over 10, 15 and 20 years.

15. We think aligning any periodic reporting requirements with the DWP’s expectations would be most cost efficient and provide a good range of data points.

Question 4: Would it be helpful to mirror the DWP’s approach in terms of the reporting periods?

Developing comparable metrics – the case for disclosing more than one metric per scheme

16. In theory it is possible to calculate one performance figure for the entire scheme. However, we are doubtful that providing one figure only would allow meaningful comparison.

17. Most default funds are ‘lifestyled’. This means different savers at different ages in the same scheme, and in the accumulation/growth phase of their retirement journey, may get different performances from their pension product’s overall investment strategy. This reflects the age-based differences that may exist in the underlying asset allocation.

18. During the pre-retirement phase of savers’ pension journeys, even those of the same age with the same overall pension provider may experience very different performance. This is based on the choices made by trustees, employers or providers about the retirement benefits ‘targets’ chosen for the default or some other strategy. This is especially the case in those pension products that offer trustees and employers the option of customising the default glidepath in this way.

19. If scheme investment performance data was provided on age cohorts it would bring reporting into closer alignment with the investment return outcomes that pension savers experience, based on where they ‘sit’ within pension product glidepaths.

20. One example might be to consider cohorts in terms of the following years to target retirement date:

  • 0 to 5 years
  • 5 to 20 years
  • more than 20 years

21. Alternatively, the DWP’s statutory guidance requires relevant schemes where net returns vary with age to publish age-specific results for savers aged 25, 45 and 55.

Question 5: Would publishing a set of metrics based on age cohorts bring investment performance reporting closer to the saver’s investment performance experience of a pension scheme/product? If not, is there a better alternative we have not considered?

Question 6: When considering which age cohorts to consider, is the example we have provided appropriate? Alternatively, would it be more effective to mirror the DWP’s approach?

Question 7: What disclosures, if any, should be made for self-select options?

Developing metrics – risk adjusting return figures

22. Varying performance can be driven by varying levels of risk. Alongside the net investment performance figure, it is important to capture the risk element to allow for effective comparison. We believe that the ability to assess whether one investment strategy produces an equivalent or superior return per unit of risk to that of another over a defined period, is a valuable feature of a saver’s experience. This is especially true if data are collected in a way that allows for the experiences of similarly aged investors with similar glidepath targets to be compared side-by-side.

23. The DWP’s statutory guidance requires net investment returns to be presented as an annual geometric average but allows schemes to show risk-adjusted returns as well, if they believe it would be helpful to do so. We think the analysis of risk-adjusted performance to be an important part of the VFM assessment.

24. Risk-adjusted metrics not only provide insight into how efficient a strategy is at generating returns, but also helps to explain and predict the characteristics of an investment journey a saver experiences over a period. For example, risk-adjusted metrics can help to explain the nature and scale of volatility that a saver has or may potentially be exposed to.

25. Through maintaining a grip on the risk characteristics of an investment strategy, trustees and scheme managers can monitor and influence the saver’s experience and ensure that the strategy is appropriate and suitable for the profile of the scheme’s membership. Provided that asset managers make an array of risk-adjusted returns data readily available to their clients, we believe it should be relatively straightforward and practical for trustees and scheme managers to disclose risk-adjusted performance metrics.

26. There is no perfect way of determining the risk inherent in an investment portfolio. There would be challenges in determining a standardised approach to assessing risk, and disclosure of risk-adjusted returns should not be regarded as a substitute for taking responsibility for effective risk management. However, we think this is a discussion worth having, given that the disclosure of net investment returns without risk adjustment could be misleading or lead to firms being incentivised to take excessive risk.

27. The Sharpe ratio is the most widely used method for calculating risk-adjusted returns. It is calculated by subtracting the risk-free rate from the return of the portfolio and dividing that result by the standard deviation of the portfolio’s return, but it is limited to instances where the underlying data fits a Normal distribution. There are other metrics in use, each with their respective strengths and weaknesses at assessing investment performance, such as:

  • Sortino ratio, which compares return on a portfolio with downside risk rather than volatility
  • Information ratio, which measures portfolio returns beyond the returns of a benchmark (usually an index) compared to the volatility of those returns
  • Treynor ratio, which determines how much excess return was generated for each unit of risk

Question 8: Do you think reporting based on age cohorts would be enhanced through the use of risk-adjusted returns as an element of a scheme’s VFM assessment or would risk-adjustment then be unnecessary?

Question 9: If risk-adjustment is used, what risk-adjustment metric(s) would you suggest? For example, the Sharpe ratio as i) a standalone factor, or ii) in combination with other risk metrics?

Question 10: Is there any reason why it would be impractical to report on risk-adjusted performance metrics in addition to providing a metric based on actual performance returns?

Question 11: What are your views on presenting returns only as an annual geometric average to provide consistency with the DWP’s requirement?


28. We seek disclosure of performance to drive better comparison between schemes.

29. To make comparison effective, it is not just what information is disclosed, but how (and in what format) it is disclosed that matters.

30. We would like to use an electronically readable format that would allow easy use across industry. Data could then be made available online.

31. We do not propose separate routine reporting to us a regulator as we want to foster market driven solutions through transparency, though we may in due course use some of the data for our own analysis.


32. Given the range of schemes in the market, it would not be possible for trustees, employers and others to compare their schemes to all available schemes.

33. Benchmarks make comparison easier. The use of specific benchmarks for comparing investment performance could be prescribed. For example:

  • widely used existing market benchmarks such as simple reference portfolios – ie notional portfolios of passive, low-cost, listed investments suited to the relevant investment horizon and risk profile
  • deriving benchmarks from an existing ‘public’ option such as NEST, notwithstanding the fact that NEST’s costs have been subsidised by government, comparison of investment performance with NEST may be a good reflection of the opportunity cost of the provider

34. It is possible that commercial benchmarks may emerge, using the data made available by schemes.

35. In the absence of suitable benchmarks, schemes could compare their actual performance to a composite benchmark (eg ABI Mixed Investment 40% - 85%) or cash or inflation linked indices (eg CPI + x%).

36. A second option may be to compare schemes across cohorts with a selection of similar schemes without considering the target outcome. As well as not necessarily being a fair comparison, a limitation of this approach is that the choice of scheme may not be a fair reflection of average investment performance across the sector.

37. The DWP legislation requires schemes with assets under £100m to compare their investment performance against three larger schemes. As we look across the whole trust-and contract-based market it is unlikely that a similar comparison would be appropriate for our purposes. However, if the preferred approach to measuring investment performance is to collect datasets by age and investment target, benchmarking against third parties or a defined standard becomes harder. It would require the construction of ‘average’ asset allocation for each cohort, which would then need to be applied to a suitable set of indices to produce an independent benchmark.

Question 12: We welcome views on how you see this developing. Would it be helpful/possible to establish a benchmark or would you prefer to compare cohorts against a market average or against a few selected similar schemes? If so, how would that selection be made?

Question 13: Do you think a commercial benchmark is likely to emerge if these data are made publicly available?

4. Customer service and scheme oversight

Good value services go beyond minimum service levels but do not extend to gold-plating

1. We want stakeholders to take a holistic view of VFM, in the interest of long-term saver outcomes. That means having to take account of other factors than investment performance and costs when assessing a schemes value for money offering.

2. In this chapter, we seek views on what factors really make a meaningful contribution to long-term outcomes. We use the term ‘service’ to describe these for the purposes of this paper, though some aspects, such as scheme administration, will be perceived as a basic feature rather than a service by some stakeholders. We also ask whether mechanisms should be put in place to allow trustees and others to compare these other services.

3. While we think it is reasonable to take account of some aspects, there are other aspects of service that, while possibly superficially attractive to savers and their employers, do not drive long-term value and so should not be of primary concern when assessing a scheme. We want to avoid firms competing to provide unnecessary additional features.

4. Stakeholders already take account of wider factors, and what is seen to matter can change over time. Figure 4 shows a Broadridge survey of DC providers, illustrating how communication has increased in importance for respondents since 2015.

Fig 4: survey of the most important criteria when selecting workplace DC provider


5. DWP legislation coming into force in October will require schemes with total assets of less than £100m to assess the value they offer their savers in a more holistic way. For those schemes that are caught by the new regulations, the trustees must complete an annual value for members assessment. This will look at a range of factors which must be assessed on an absolute basis. The criteria these schemes will be expected to assess are based on the service standards set out in TPR’s DC code:

  • quality of record-keeping
  • promptness and accuracy of core financial transactions
  • quality of communication with savers
  • appropriateness of the default investment strategy
  • the quality of investment governance
  • skills, knowledge and understanding
  • management of conflicts of interest

6. The DWP proposals are targeted at schemes where there are significant concerns about their ability to deliver VFM. But we believe that these factors, as well as the services standards used by industry and set out in figure 3, provide a useful starting point to help build agreement around which factors matter in delivering VFM. We propose that these factors can be arranged under three broad headings:

  • Member communications
  • Scheme administration
  • Governance and oversight

7. The FCA handbook and TPR guidance already set out minimum expectations of service for some areas, and clearly all providers would be expected to meet those minimum standards.

Member communication

8. Good member communications provided at the right time and in an accessible format are vital if savers are to engage and make decisions that lead to good outcomes in retirement.

9. Good communication may encourage members to save more, or engage more effectively with the choices they have to make, thereby having a real impact on long-term member outcomes.

10. Good communication might include taking the contact preference of scheme members into account, such as communicating with members via email rather than post. It might also include enabling scheme members to access information about their pension through an online portal or app.

11. There will be other aspects that make communication more effective, and the FCA-TPR joint work on the consumer journey is likely to generate further insights into what constitutes good communication, and what outcomes that can achieve.

Question 14: Do you agree the quality of communication is a relevant factor to consider in VFM assessments?

Scheme administration

12. Scheme administration is fundamental to the running of a scheme and will likely be the main way that scheme savers judge the quality of service that a scheme provides, whether or not that is appropriate, because that is their lived experience of the scheme. Although interactions between a scheme and its savers may be infrequent, they can be crucial, such as when savers want to transfer out of a scheme or access their funds in retirement. When a scheme is poorly administered, this can have real consequences for the end investor. They may also lose confidence in the scheme.

13. TPR’s DC code sets out specific regulatory expectations for trustees on communications and administration. Administration is rarely a function that trustees operate themselves – it is generally outsourced to a third-party provider, a dedicated in-house team, or it may be carried out by the employer’s HR department. Consequently, it is for the trustee to engage with their administrators to ensure that scheme savers are receiving VFM from the administration service.

14. Many aspects of administration fall under the category of basic requirements that all schemes have to meet. But we think that better administration quality may help trustees to meet TPR’s regulatory expectations and hold their administrators to account.

15. The FCA’s Handbook sets out general and some specific regulatory expectations for firms in relation to communications and administration. Providers of personal pension schemes may conduct administration in-house or outsource to a third-party provider. FCA rules require IGCs to assess core financial transactions and communications to savers, as part of their assessments of the VFM of workplace personal pension schemes and investment pathway solutions. IGCs must raise with the governing body of the provider, generally the board, any concerns they may have. It is for the provider to address these concerns, and to engage with the third-party administrator where the administration service has been outsourced. While a firm can outsource services to a third-party, they cannot outsource responsibility for the quality of those services.

Question 15: Do you agree administration is a relevant factor that contributes to long-term VFM?

Governance and oversight

16. Governance of a scheme and oversight over investment strategies is crucial to investment performance and good pension outcomes. Trustees and managers need to consider how their choices meet the needs and characteristics of scheme savers. In the long-term, good choices should be visible and measurable through the investment performance generated. However, in the short term, more qualitative factors can allow for effective comparison.

17. Scheme governance bodies have a duty to consider whether default investment strategies are designed and executed in the interests of scheme savers of workplace pension schemes, and whether core scheme financial transactions are processed promptly and accurately. They must also consider whether communications are fit for purpose and properly account for the characteristics, needs and objectives of savers. We think that metrics and benchmarks on customer service and scheme oversight will support IGC assessments of VFM.

18. A well-designed default arrangement includes considerations such as the need for diversification, the choice of asset classes and allocations to those, the risk and expected returns of underlying investments, ESG factors including climate change, investment time horizons, glidepaths and lifestyling.

19. For most savers, pensions are long-term investments. This means trustees and managers need to act as long-term stewards of the assets under management, and think carefully what activities are needed to ensure long term value of the assets the scheme is invested in.

20. There is work underway to further enable the inclusion of illiquid assets in default strategies through a proposed new type of regulated fund, a Long-Term Asset Fund. Trustees and managers would need to consider the specific liquidity needs of their scheme and the additional governance needed to oversee such investments.

21. Other aspects of governance such as the management of conflicts of interest and ensuring trustees have the necessary skills and knowledge to run the scheme are also important factors for ensuring that occupational pension schemes deliver VFM.

22. Diversity and inclusion are also important factors of good governance and decision-making, and contribute towards achieving better outcomes for savers. As explained within TPR’s Equality, Diversity and Inclusion Strategy and the FCA’s jointly published DP21/2, we believe that governing bodies made up of people who have a greater range of backgrounds, life experiences, expertise and skills will tend to lead to wider discussion, which in turn is likely to produce more robust decision-making.

23. Against this backdrop, we consider that further transparency about the quality of governance arrangements would help drive VFM.

Question 16: Do you agree the effectiveness of governance is a relevant factor that contributes to long-term VFM?

Question 17: In your opinion, are there any obvious service standards missing from the above list? Please explain how your suggestion contributes to scheme value.

Assessments should cover the role of Environmental Social and Governance (ESG) factors

24. To drive long term value through pension investments, it is important that providers, trustees and IGCs take ESG factors into account in all aspects of pension scheme design. While addressed to the Chairs of authorised fund managers, the FCA’s recent Dear Chair letter on improving quality and clarity of ESG and sustainable investment funds discusses similar themes – particularly under Principle 1 of the guiding principles annexed to that letter.

25. This is an area of considerable regulatory focus with increased disclosure requirements being introduced. This is reflected in CP 21/17 on enhancing climate-related disclosures by (among others) FCA-regulated pension providers, which recently closed for comment, and TPR’s recent consultation on new requirements for the governance and reporting of climate-related risks and opportunities. We are not proposing to introduce a separate ESG aspect of assessment to our VFM framework as we think it should be assessed as part of the investment design and communication services elements.

26. Communication on the scheme’s approach to ESG factors should be considered within the context of saver engagement when assessing a scheme’s level of customer service. For instance, if communicating with savers about ESG-factor investing drives improved saver engagement, this should be assessed alongside other efforts to engage savers on their pensions. ESG product characteristics should be clearly stated and measurable, so they can be compared across products.

Metrics and assessing good value in customer services will be challenging and may require a neutral convenor

27. We consider the factors set out in this chapter to be important. But they are highly qualitative and will be difficult to measure with the degree of accuracy that is normally associated with regulatory disclosures.

28. For this reason, we are sceptical that it would be the right approach to enshrine specific methods of measurement in regulation. Instead, we think it would be more appropriate to use our role to encourage industry work in this space.

29. To facilitate meaningful development of standards, a neutral convenor with expertise in this area such as the British Standards Institution could be called on. We recognise there would be a cost to appoint a convenor which would have to be worked out. This convenor could oversee the development of a series of standardised metrics on different aspects of customer service, which together would form an agreed ‘standard’ or potential standards (given the differences between types of scheme).

30. This standard and the underlying metrics could then be developed by consensus between interested stakeholders, including representatives from industry and saver groups. We would also be part of this development process.

31. If a consensus is not reached in the development of a standard, a more interventionist approach would be considered. For example, developing and imposing these metrics ourselves.

32. There are already industry initiatives relevant to this question. For example, the Pensions Administration Standards Association (PASA) provides accreditation for administration standards, which is promoted by TPR in its DC code and guidance. The Audit and Assurance Faculty (AAF) provides guidance on producing assurance reports covering internal processes and controls.

33. It would in theory be possible for the FCA and TPR to develop and impose some key metrics directly, building on the standards already enshrined in our respective rulebooks and in law. If we did so, they are likely to vary between occupational and contract-based schemes, given the different responsibilities of trustees compared to firms and IGCs, and the different regulatory regimes.

Question 18: Do you agree this is not a role for the regulators at this stage?

Question 19: Would it be helpful to appoint a neutral convenor to develop a service metrics standard? If not, who do you think should create metrics on service in pensions?


A potential long-term outcome: independent certification against a standard

34. If a common standard for measuring ‘other services’ is agreed, one option is that over time trustees and IGCs could disclose against this and state if their firm or scheme is independently certified against the standard. This process could be conducted by an independent certification organisation accredited by the United Kingdom Accreditation Service (UKAS). Where firms are not independently certified against the standard, they could be required to explain why.

35. Firms, trustees and IGCs (where relevant) could report on compliance with the overall standard as part of the VFM assessment process, rather than reporting on individual metrics. Scheme savers could be provided with assurance that the standard is met without being exposed to an unnecessary level of detail.

36. This standard-certification approach could be designed to raise the quality of service and governance up to a minimum level that all savers should expect. It is not our intention to encourage competition on service above this minimum threshold, as this may result in higher costs and charges for scheme savers than necessary.

37. For smaller and micro occupational pension schemes, the need for independent certification might be seen as an unnecessary additional burden that would ultimately be borne by the saver. However, the forthcoming requirements on schemes with less than £100m AUM to assess the VFM to savers includes an expectation that they consider the quality of their administration and governance. Undertaking this assessment would be seen as a reasonable explanation as to why they have not sought independent certification.

Question 20. Do you think that over time independent certification against a standard is worth exploring for benchmarking service metrics? If not, what alternative arrangement would you suggest?

5. Costs and charges

Building on existing cost disclosures

1. A subset of pension schemes, specifically relevant DC workplace pension schemes are already required to disclose to their savers the costs and charges they can expect to bear or have borne to date. The costs and charges of individual funds must also be disclosed under FCA requirements.

2. In designing market wide disclosures, we would propose to build on the existing definitions that underpin these disclosures– primarily ‘administration charges’ and ‘transaction costs’ – and to avoid the collection of further data.

3. To allow comparison between saver outcomes delivered by schemes, we think member borne costs and charges are particularly relevant. In some schemes, the employer is responsible for meeting some or all costs and charges. We do not think disclosure of any charges solely met by the employer is necessary to allow effective comparison of value for money for savers, though it may be of interest to employers to ensure that they are getting value for the additional features they are paying for.

Disclosing at the right level

4. To enable effective comparison for the purposes of VFM, disclosures have to be made at a meaningful level, allowing trustees, employers and others to make a meaningful comparison.

5. Within an overarching HMRC-registered scheme, costs in a workplace context are likely to be employer specific, either negotiated by an individual employer or with different cost offerings for different cohorts of (typically smaller) employers.

6. Similar considerations arise in the context of a Master Trust.

7. The FCA has previously stated that it supports an approach to comparisons that aggregates charges at the level of cohorts of similar employer arrangements, to the extent that such an approach would allow a participating IGC to compare its own provider’s individual employer arrangements with comparable arrangements at a cohort level, as well as enabling cohort to cohort comparisons. 

Options for disclosing administration charges and transaction costs

8. While we want to build on existing requirements, there are still several options for how to present costs and charges below.

9. One option is to use the existing definitions - administration charges and transaction costs – to separate the fixed ongoing costs, such as annual management charges, from the variable costs incurred from transactions.

10. These definitions are already used by trustees for the reporting of costs and charges in DC occupational pensions and, as noted above, the FCA has recently made rules requiring scheme oversight bodies to publish the same information at a scheme level for FCA-regulated workplace pension schemes.

11. In addition, when schemes of under £100m AUM carry out their more detailed VFM assessments, they will be required to use these definitions when comparing their costs and charges to those of other schemes.

12. Cost disclosures using these definitions will most easily facilitate the use of the same metrics across the whole pensions landscape, helping savers understand the costs and charges for all their pensions in the same way. In the future, pensions dashboards or other similar comparison tools may include costs and charges information, so adopting this standard approach now may help with such future developments.

13. A second option would be to split the current definition of administration charges into two components - fund management and pensions administration. Whereas the existing disclosures are aimed at savers, where simplicity may be preferable, with this work we want to create a framework that helps decision makers such as trustees and employers act more effectively to generate VFM for savers. Having more granular disclosures could provide a framework to measure not only costs and charges, but also how trustees manage those costs and charges. Trustees would have clarity as to where costs were being incurred and could use this information to better manage those costs.

Question 21: Should we use the existing administration charges and transaction costs definitions in developing VFM costs and charges metrics?

Question 22: Would splitting out the administration charges be a more useful metric? If not, are there other definitions you think would be more appropriate?


Should we introduce new benchmarks to assess costs and charges?

14. From feedback to CP20/9, stakeholders believe that obtaining data on comparable schemes is difficult. To some extent, requiring the publication of costs and charges and investment performance data by all schemes would alleviate this problem. But there would arguably be merit in having benchmarks that all schemes could use.

15. As we have suggested for investment performance, introducing one or more benchmarks would make the VFM achieved by different pension schemes, in respect of their costs and charges, directly comparable.

16. One option for a benchmark would be the market median charge, or the median for a relevant market segment. It potentially enables the use of the same benchmark metric across all pension schemes, with the option of applying different benchmarks for different categories of scheme. For example, the benchmark for workplace and non-workplace pension products could be calculated separately.

17. A disadvantage of using the median as a benchmark is that it is a relative rather than an absolute measure, and a situation could arise where all the options in the market were poor VFM, even if some were performing well against the benchmark. This is a historic problem and continues to be so for legacy funds.

18. As with metrics relating to investment performance, there is a question whether commercial providers would emerge to facilitate those calculations, and whether we would need to prescribe a format in which data is published to allow for easy use.

19. Other options for relative benchmarks would be to obtain the mean of charges in the market. However, the mean is liable to being skewed by extreme outliers in the market. Another option would be to introduce more segmentation within the benchmarks by using quartiles, rather than just the median. This would help to give a clearer picture of the spread of charges in the market and encourage providers in the lowest performing quartile (ie those with the highest charges) to improve their VFM. These benchmarks are all relative and so have the same disadvantage highlighted above for the median.

20. Using a not-for-profit scheme would provide an absolute comparison, and this could encourage more effective competition between scheme providers and avoids the risk of the benchmark not reflecting generally poor value in the market. It is also arguably the right benchmark for workplace pensions. If an employer is not happy with their pension scheme, a not-for-profit scheme is always an alternative option for them to consider. Other pension providers should therefore demonstrate why they offer better value than a not-for-profit workplace pension scheme.

21. The disadvantage of using a not-for-profit benchmark is that they often benefit from economies of scale, which other schemes cannot match. This may make it a less appropriate benchmark for other workplace schemes. There is a risk that a not-for-profit could be seen as an unachievable benchmark and therefore discourage competition between providers.

22. Not-for-profit schemes are also a less relevant benchmark for non-workplace pension products. Members of non-workplace pensions do not always have the option of transferring to a not-for-profit pension scheme, and so using one as a benchmark may not be appropriate.

23. We have already received some feedback on the question of a not-for-profit comparator, as set out in CP20/9, and this was generally not favourable, though respondents were generally FCA-regulated firms or their IGCs. We would welcome views from other stakeholders on this point.

24. We welcome views on whether there are other options for benchmarks or to facilitate comparison that should be considered.

Question 23: Do you agree we should introduce benchmarks for costs and charges?

Question 24: What are your views on our suggested options for benchmarking costs and charges? If not these options, what benchmarks should be used?

Annex 1: Questions

Q1. Do you agree that consistent disclosure of performance is necessary to enable better decision making?

Q2. Do you agree that comparisons should be of net rather than gross investment performance?

Q3. Do you have any suggestions on how to make disclosure of net investment returns effective given that there may be varying charges for the same funds within multi-employer schemes? For example displaying a range, or requiring disclosure of each different level of net investment performance.

Q4. Would it be helpful to mirror the DWP’s approach in terms of the reporting periods?

Q5. Would publishing a set of metrics based on age cohorts bring investment performance reporting closer to the saver’s investment performance experience of a pension scheme/product? If not, is there a better alternative we have not considered?

Q6. When considering which age cohorts to consider, is the example we have provided appropriate? Alternatively, would it be more effective to mirror the DWP’s approach?

Q7. What disclosures, if any, should be made for self-select options?

Q8. Do you think reporting based on age cohorts would be enhanced through the use of risk-adjusted returns as an element of a scheme’s VFM assessment or would risk-adjustment then be unnecessary?

Q9. If risk-adjustment is used, what risk-adjustment metric(s) would you suggest? For example, the Sharpe ratio as i) a standalone factor, or ii) in combination with other risk metrics?

Q10. Is there any reason why it would be impractical to report on risk-adjusted performance metrics in addition to providing a metric based on actual performance returns?

Q11. What are your views on presenting returns as an annual geometric average to provide consistency with the DWP’s requirement?

Q12. We would welcome views on how you see this developing. Would it be helpful/possible to establish a benchmark, or would you prefer to compare cohorts against a market average or against a few selected similar schemes? If so, how would that selection be made?

Q13. Do you think a commercial benchmark is likely to emerge if these data are made publicly available?

Q14. Do you agree the quality of communication is a relevant factor to consider in VFM assessments?

Q15. Do you agree administration is a relevant factor that contributes to long-term VFM?

Q16. Do you agree the effectiveness of governance is a relevant factor that contributes to long-term VFM?

Q17. In your opinion, are there any obvious service standards missing from the above list? Please explain how your suggestion contributes to scheme value.

Q18. Do you agree this is not a role for the regulators at this stage?

Q19. Would it be helpful to appoint a neutral convenor to develop a service metrics standard? If not, who do you think should create metrics on service in pensions

Q20. Do you think that over time independent certification against a standard is worth exploring for benchmarking service metrics? If not, what alternative arrangement would you suggest?

Q21. Should we use the existing administration charges and transaction costs definitions in developing VFM costs and charges metrics?

Q22. Would splitting out the administration charges be a more useful metric? If not, are there other definitions you think would be more appropriate?

Q23. Do you agree we should introduce benchmarks for costs and charges?

Q24. What are your views on our suggested options for benchmarking costs and charges? If not these options, what benchmarks should be used?

Annex 2: Background information

Several organisations have laid foundations for improving VFM in pensions

Office of Fair Trading

In 2013, the Office of Fair Trading’s (OFT’s) market study into DC workplace pensions concluded that competition alone would not drive VFM for all savers in that market.

The OFT’s final report made a series of recommendations aimed at:

  • improving the governance of schemes
  • the quality of information available about schemes
  • addressing current and future risks of saver detriment

In light of these recommendations, the FCA, TPR and the DWP have implemented a package of reform measures to help ensure that workplace pension schemes are high quality and offer VFM.


The FCA has implemented:

The FCA has also extended the remit of IGCs to oversee, among other things, the VFM of drawdown investment pathways. The FCA has said it will review the implementation of investment pathways and the impact of these rules in summer 2021.

The FCA is doing other work to increase the transparency of pension costs and charges, and address other problems in the pensions market, eg:

The FCA, DWP and TPR

The FCA, DWP and TPR have all acted to improve VFM in recent years. This includes the following:

  • In February 2018, the DWP made its regulations for publishing and disclosing costs and charges information about the workplace pension schemes regulated by TPR to scheme savers. In November 2019, the DWP also published a consultation seeking views on the government’s approach to achieving simpler annual statements for workplace pensions. This included proposals on the presentation of information on costs and charges to help savers identify what they have paid for their pensions. The consultation response was published in October 2020, highlighting that costs and charges are an important driver of good outcomes for scheme savers.
  • In June 2020, the DWP published a call for evidence to Review the Default Fund Charge Cap and Standardised Cost Disclosure. The call for evidence sought views and evidence on:
    • the level and scope of the charge cap applicable to the default arrangement within certain DC pension schemes used for AE
    • the appropriateness of permitted charging structures and the extent to which they should be limited
    • options to assess take-up, and widen the use of standardised cost disclosure templates

In September 2020, the DWP published the government response to the 2019 consultation on Investment Innovation and Future Consolidation. The response included proposals for regulations to be introduced in October 2021 requiring DC and hybrid schemes with less than £100m in total assets that have been operating for at least three years at the end of the previous scheme year from when their chair’s statement falls due to carry out a more detailed annual assessment of VFM.

The response also included a consultation on draft regulations that would require all relevant DC schemes, regardless of size, to publish net returns for their default and self-selected funds. This is intended to assist with the completion of the Value for Members assessment but will also provide greater transparency to savers.

In June 2021 the DWP published their response to the September 2020 consultation in which they set out their commitment to introduce new regulations from the 1 October 2021 that amongst other things contain the new value for saver requirements on schemes under £100m. Alongside that response the DWP also issued new statutory guidance to assist trustees on how to complete the new VFM assessments. The guidance also takes effect from 1 October 2021.

Annex 3: Abbreviations in this document

Abbreviation  Meaning 
CBA Cost Benefit Analysis
CFI Call for Input
COBS Conduct of Business Sourcebook
CP Consultation Paper
DP Discussion Paper
DC Defined Contribution
DWP Department for Work and Pensions
FCA Financial Conduct Authority
FS Feedback Statement
FSMA Financial Services and Markets Act 2000
GAA Governance Advisory Arrangement
IGC Independent Governance Committee
LRRA Legislative and Regulatory Reform Act 2006
OFT Office of Fair Trading
PRIIPs Packaged Retail and Insurance-based Investment Products
PS Policy Statement
TPR The Pensions Regulator
VFM Value for Money

Annex 4: Feedback from FS19/5 – effective competition in non-workplace pensions


1. In its Feedback Statement FS19/5 Effective Competition in Non-Workplace Pensions, the FCA sought views and evidence from saver and industry representatives about the factors that influence the behaviours of savers and providers and whether the current market dynamics ensure fair outcomes for non-workplace pension customers.

2. In FS19/5, the FCA asked for views on what a VFM framework for pensions should consist of:

As discussed above, we will determine next steps on charges in the context of our upcoming work that considers a VFM framework for pensions. This may involve developing metric and benchmarks across workplace and non-workplace pensions so that scheme operators, savers and other stakeholders can compare value for money between schemes and products.

Question 6: Do you have any views on what such a framework should consist of?

Feedback and our response

3. The FCA received 14 responses from pension providers and consultancy firms. The FCA thanks all respondents for their feedback.

4. Most respondents reflected on the level of detail that should go into a VFM framework and what factors should be considered when assessing VFM. Almost all respondents emphasised that a VFM framework should take a holistic approach, considering a range of quantitative and qualitative, or ‘hard’ and ‘soft’, factors.

5. Some highlighted that costs and charges are only one aspect of VFM and a holistic approach would avoid the scenario where providers compete on charges alone.

6. The FCA agrees that any framework should consider multiple factors and not place undue emphasis on charges. Costs and charges are an important part of VFM because they can have such a large impact on a saver’s final pot size. However, any framework should consider them alongside other aspects of value.

7. Respondents provided examples of the areas the framework could consider and areas for potential benchmarking, as well as the idea that a framework may need to differentiate between different pot sizes, and modern versus heritage products.

8. Some respondents were concerned about the diversity and range in the non-workplace pensions market, particularly when compared to the relative homogeneity of the workplace pensions market. Some emphasised that this would make it difficult or impossible to create a single VFM framework for all pensions products.

9. The FCA agrees that a VFM framework will need to take account of the wide variety in the non-workplace pensions market. However, the FCA does not agree that this variety will make it impossible to create a framework.

10. Many respondents discussed how savers are often more engaged in the non-workplace pensions market. Some stated that most savers in this market take advice and make a more conscious choice than those in the workplace pensions market.

11. Several respondents underlined that this means VFM is much more individual in non-workplace pensions. Each saver will have different views on what value is for them and any overarching framework would need to allow for this.

12. The FCA agrees that savers may be more engaged in the non-workplace pensions market. However, findings in FS19/5 showed that overall engagement is still low. The FCA thinks there are elements of VFM that remain true for all savers, regardless of their individual preferences.

13. Many respondents welcomed the idea of a VFM framework that would bring consistency across the pensions landscape, both workplace and non-workplace. One respondent noted that savers often move between workplace and non-workplace pensions products, so it would not make sense to use different measures of value for different products. Some highlighted the current industry practice in this area, with some stating that they already apply a single VFM framework across all their pensions products.

The FCA’s response

The FCA has considered this feedback carefully when researching the possible options for metrics and benchmarks for value for money. The FCA thinks that any VFM framework should be applicable across the whole pensions landscape, as this will bring consistency for consumers. The FCA agrees that any approach will need to be holistic and take account of the greater range in the non-workplace pensions market.


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