The Financial Conduct Authority has published an updated consultation on how pension funds will be compared in terms of value for money, as part of a broader push to drive better outcomes for pension savers.
In a consultation published on Thursday, the regulator along with the Department for Work and Pensions and The Pensions Regulator, said pension schemes will need to publish clear data on their performance, costs and quality of service.
If a pension is found to offer poor value, firms and trustees will be required to fix it by moving savers to better schemes or driving improvements.
Over 16 million workers have defined contribution pensions and the FCA said value for money makes a significant difference for pensions savers. Its own analysis shows that over five years, a £10,000 pot could grow to £10,400 in a poor scheme or £15,100 in a high performing one.
The FCA said the proposals, part of its value for money framework, aim to make it clearer how pensions perform, what they cost and the quality of service. This includes a four-point traffic light rating system to make comparisons easy and clear, with dark green for strong performance, light green for good value, amber for improvement and red for poor value.
Revised changes
The proposals build on feedback from the FCA’s previous consultation ‘The Value for Money Framework’, which was first published in August 2024.
At the time, the regulator said it wanted to reduce the number of savers with workplace personal pensions that are delivering poor value and drive better value for money across defined contribution pensions through greater scrutiny and competition on long-term value rather than predominantly cost.
The initial consultation proposed assessments made on backward looking investment performance data. However, in the updated proposals, the FCA is seeking to introduce forward-looking metrics to be considered alongside backward-looking metrics in assessments.
It said its latest proposals would include streamlined service quality metrics to allow further engagement with industry on others, as well as comparisons of value against a commercial market comparator group rather than three other arrangements as previously proposed.
It has also replaced its previous three point-rating system of green, amber, red with a four-point system to highlight top performers.
Commenting on its latest consultation, Sarah Pritchard, deputy chief executive of the FCA, said: “Good value isn’t just about low costs – it’s about strong performance, good service, and transparency. We want to see a focus on value. By working with government and The Pensions Regulator, we will help secure better returns for pension savers.”
Torsten Bell, Minister for Pensions, said: “It is simply too difficult for people to know whether their pension savings are working for them. That’s not right when we’re talking about something as important as people’s security in retirement.
“These proposals change that. Pension schemes’ performance will be public with a simple rating system. In future, savers will know if they are getting a good return or not. This is about being straight with people and making sure people’s savings work as hard as they did to earn them.”
The framework also sets out stronger governance with clear expectations for trustees and providers, as well as clear steps to take when schemes are not giving members good value, including closing them to new business and moving members to better-performing schemes.
The joint proposals are open for comment until 8 March 2026. Final rules will only be confirmed once responses have been considered and are subject to the Pension Schemes Bill receiving Royal Assent.
The FCA is currently working towards 2028 for the first VFM assessments to be required.
Industry reaction
The revised proposals were largely welcomed by the pensions industry.
Gail Izat, workplace managing director at Standard Life, said: “The Value for Money framework will play an important role in the pensions market in the years to come so we welcome the additional certainty that this consultation provides regarding its implementation.
“In recent years many of those who select pension schemes have focused on costs, albeit with a growing emphasis on additional factors. The framework will progress that trend towards a more rounded comparison including additional factors such as investment performance including forward looking metrics.
“As we all know, past returns are not a guarantee of future returns and so outlining expectations for the future is a helpful addition. We would have liked to see greater emphasis on service measures, which as currently envisaged, can maintain or downgrade but not improve a provider’s rating.
“Ultimately, the Government’s broader push to drive scale in the workplace pensions market with fewer, larger schemes will help improve value for money across the market and the VfM framework is another helpful initiative that will help customers and those who select pensions to assess value.”
Kirsten Pettigrew, senior financial planner at Rathbones, said: “This is a welcome development. Many people rely entirely on their workplace pension to build a sufficient nest egg for a comfortable retirement, and as such there are high levels of inertia over how and where their pensions are invested. Sadly, many risk sleepwalking into subpar retirement provisions.
“Colour-coded value assessments is a novel and potentially effective way to make pensions information more accessible and help firms and trustees make better decisions on behalf of their often-passive scheme members. The key question, however, is what defines value in pensions. Since apples-to-apples comparisons aren’t always possible across schemes, it’s crucial that the value metrics are robust enough to separate the wheat from the chaff.
“The FCA is heading in the right direction in tackling retirement planning and these moves make it clear that relying on a sluggish pension for a comfortable retirement is not enough, but greater financial education across all age groups is still needed to empower individuals to make decisions that suit their circumstances and plans.”
Steven Cameron, pensions director at Aegon UK, commented: “We welcome many of the changes the FCA is proposing to the Value for Money framework. A lot has changed since the previous consultation back in August 2024, which means the scope and overall purpose of the VFM framework across both contract and trust-based workplace pensions needs reconsidered.
“We welcome the move to a 4-rating system with light and dark green, but the implications will need thought through in detail to ensure the new approach avoids unintended consequences.
“One of the most significant changes from previous proposals is the creation of a centralised database which will compile commercial market averages to aid ratings. While this replaces the self-selection risk of governing bodies selecting their own three comparator arrangements, the stakes for making sure the averages are fair and meaningful are high.”
However, Cameron raised concerns about the additional inclusion of forward-looking investment performance data, with trustees and schemes being given flexibility around assumptions and approach, warning that it creates a “real risk” of subjectivity and lack of comparability.
Cameron said the timetable for implementing the framework also remains very challenging, particularly with so many other Pension Schemes Bill changes.
“Importantly, before members of poor value contract-based pension schemes can be transferred into those offering better value, we need contractual override. This makes it even more important that the FCA advances its promised consultation here without further delay,” he added.
