The Financial Conduct Authority’s (FCA) latest Value for Money (VFM) Framework proposals landed with a noticeably different tone from the initial iteration, which faced significant industry criticism when it emerged in 2024. The revised approach certainly feels more measured and more likely to improve outcomes for defined contribution (DC) pension savers.
A key shift is the move towards a longer-term perspective through the proposed introduction of forward‑looking performance metrics. This development will likely be welcomed by the industry. By supplementing past performance metrics with reasonable expectations of future performance, the new model offers a more rounded and realistic picture of value. In practice, this should give providers greater confidence to pursue long-term investment opportunities, including allocations to private market assets, which may help to boost returns.
Another important development is the widening of the comparison base schemes are to measure their performance by. Under the updated proposals, schemes will assess their performance against a commercial market comparator group via a central VFM database, rather than choosing a small, self‑selected peer group. A market-wide comparison will remove concerns over potential biases associated with self-selection and should provide more objective benchmarking criteria. This change should allow for a clearer indication of where a scheme genuinely stands relative to the rest of the industry in terms of performance and overall value.
The amended rating structure is also a helpful step in the right direction. The original three‑colour traffic‑light system was too blunt an instrument for some and risked unfairly penalising schemes, particularly those receiving an amber rating that prevented them from taking on new employers. The FCA’s move to a more nuanced four‑point scale, including a light green category for schemes which offer value but still have room for improvement, adds much‑needed balance and will go a long way towards satisfying those who had concerns. Crucially, it enables schemes to acknowledge the need for progress without being unduly penalised.
Taken together, these refinements show that the FCA is taking meaningful steps to ensure the VFM framework is not simply about producing league tables and, is instead, about driving meaningful improvement and value across the DC market. The shift is clearly towards encouraging appropriate consolidation, supporting more thoughtful investment strategies and, ultimately, delivering better retirement outcomes. After a challenging first iteration, the FCA said it wanted to get this right and these proposals suggest it is on track to do so.
Michael Aherne and Himani Patel are part of the pensions practice at HSF Kramer
