The Department for Work and Pensions has published a timeline of its pension reforms, outlining how millions of savers will benefit over the coming years.
At the centre of the reforms is a new Value for Money framework, designed to improve standards and make the way pension arrangements are assessed and compared more objective and robust.
For the first time, pension schemes will be required to measure and publish how they perform against the best in the market.
As part of this, schemes will be assessed on their investment performance, costs and charges, and quality of service and will be rated red through to green. Those that fail to act risk compliance notices, fines and in serious cases, steps to wind up the scheme.
The DWP said it is taking a “pragmatic, phased” approach to implementation by focusing the first phase of implementation on larger schemes who are better placed to complete the full assessment process.
From 2028, master trusts, large single-employer trusts and all firm-designed, open, multi-employer contract-based schemes will complete full VFM assessments and assign ratings.
Smaller single-employer trusts, legacy and bespoke arrangements will only submit data to regulators and their data will not be published.
From 2029 onwards, all in-scope schemes will be required to complete full disclosure, assessment, ratings and face consequences.
It said the move reflects the need to “balance ambition with ensuring that schemes and regulators are able to embed the new requirements effectively.”
The DWP also made amendments to the data collection period. It previously proposed that in the first year of the framework, data would be collected from January to December 2027, however, this will now be shortened to July to December 2027. It said this will ensure arrangements have sufficient lead-in time and that FCA rules and DWP regulations are in place ahead of the data collection period.
Furthermore, the DWP has also made changes to the application of consequences for underperforming schemes. It proposes that no formal consequences will apply in 2028, with consequences only taking effect from the second assessment cycle onwards.
Torsten Bell, minister for pensions, said: “Our task is to level up the quality of the pensions private sector workers receive, towards those in the public sector. For the first time, we’re making sure savers can see whether they are getting a good deal from the pension they’re saving into.
“The stakes are high, when the gap between the best and worst performers could cost a saver with a £10,000 pot over £5,000 across just five years.
“This is part of the biggest pension reforms for a generation, which are now entering the delivery phase that we are publishing the timeline for today. They represent a wide consensus across the pensions industry, who have helped shape plans that also tackle the proliferation of small pension pots, drive the move to bigger and better pensions schemes, and simply the process for savers of turning their hard-earned savings into a decent retirement income.”
Default pensions will also be introduced so that savers reaching retirement will be able to convert their savings into a reliable retirement income. Whilst individuals will always be free to choose a different option if they prefer, the changes mean the system will no longer rely on savers having to navigate complex financial decisions alone in order to get a decent retirement income.
Damon Hopkins, head of DC workplace savings at Broadstone, said: “The final set of proposals for the Value for Money framework is an important step towards shifting the focus of workplace pensions away from simply minimising costs and towards delivering better long-term retirement outcomes.
“By assessing investment performance, service quality and costs together, the framework should encourage stronger competition based on the value schemes deliver rather than headline charges alone.
“The framework has adopted a more pragmatic implementation timetable, with a phased rollout starting with the largest, better-resourced schemes first. This gives providers and trustees more time to embed the new requirements effectively and build trust in the framework. The challenge will be ensuring the assessment remains proportionate and robust, with metrics that genuinely reflect the impact on member retirements outcomes and support innovation and investment in assets that can improve long-term returns, and ultimately savers’ financial retirement aspirations.”
Kate Smith, head of pensions at Aegon, also welcomed the udpated roadmap. “It provides the industry with much needed clarity around timescales and sequencing of changes, and an element of certainty in a time of political change. We’re pleased that the Government has listened to the pension industry’s concerns about such a crowded pension reform agenda, the sequencing of the various initiatives, and the impact of implementation resource challenges.
“We’re pleased that the Minister has accepted the need for a ‘test’ period for implementation of the Value for Money framework, something Aegon strongly argued for. However, the full launch timeline has not been put back as we had hoped. Publishing the roadmap opens up a vital opportunity for discussion, for industry agreement and alignment on the most effective way forward and ultimately, for the improvement of outcomes for our customers.”
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