Industry warns against overuse of future performance metrics
The FCA’s draft Value for Money rulebook has drawn criticism for emphasizing forward-looking performance, based on feedback from its recent consultation. The authority is crafting the rules to reinforce and modernise defined-contribution savings, which the government intends to use as a primary gauge of “good” outcomes.
Concerns over forward-looking metrics
While many pension firms and industry associations have expressed overall support for the plan, a number have raised worries about matters like forward-looking performance indicators and the exclusion of collective defined-contribution schemes from the rulebook. TPT Retirement Solutions cautioned that regulators must guarantee that “forward-looking projections do not dilute accountability for poor performance”.
The company contended that excessive emphasis on future metrics should be avoided. Keeping “Realised member outcomes [remaining] the primary determinant of value” would prevent providers from obscuring weak results by tweaking forward-looking assumptions.
Ruari Grant, TPT’s policy director, warned that schemes should not be permitted to grade their own work. He said, “Given the government’s wider consolidation agenda, under which VfM will become a key mechanism for determining what ‘good’ looks like, it is essential that assessments are driven by objective evidence of member value rather than subjective interpretation or narrative.”
Weighting and dry runs
The Society of Pension Professionals suggested limiting the influence of future projections in a scheme’s total score to no more than 30%. Kate Smith, Aegon’s head of pensions, concurred that historical performance ought to be weighted more heavily and praised the FCA’s intention to “place more emphasis on actual customer outcomes and experience”.
Smith indicated that Aegon harboured “serious concerns” regarding the implementation of VfM. She called on the government to approve a pilot period “behind closed doors”. She added, “Just because there won’t be regulatory consequences [in VfM’s first year], it doesn’t mean there won’t be commercial and reputational damage consequences.”
In a statement, the body said, “Data and assessment outcomes should remain unpublished during that first cycle, allowing issues with the metrics and comparisons to be identified before they influence the market.”
Beyond investment performance
TPT pointed out possible overlap between the VfM framework and current regulatory duties, notably the annual Chair’s Statement. It maintained that this requirement should be withdrawn as VfM becomes integrated into pensions, aligning with the government’s pledge for a more proportionate, outcomes-oriented regulatory approach.
Consultancy firm LCP argued that the VfM plan insufficiently addresses employer contributions to pension schemes, including subsidised fees and ancillary member services. Stephen Budge, a partner in LCP’s DC division, noted that the updated framework could enhance results but cautioned that an excessively narrow evaluation might turn into a distracting regulatory task instead of genuinely assisting employers and trustees in boosting member value.
Guided retirement options
The Association of Member-Nominated Trustees expressed that the VfM suggestions have become “somewhat anachronistic” in light of the substantial shifts since policymakers initially introduced VfM. The body noted that when the inaugural VfM procedures commence, pension schemes will also be testing and adopting guided retirement choices.
Schemes may examine various models of collective defined contribution, which would necessitate adapting VfM into a “lifetime assessment, rather than just considering the accumulation phase”.
