Industry urges test year before VFM ratings released

The push to refine the new value for money (VFM) framework has gained momentum, with industry players advocating for 2028 to serve as a testing phase before any public ratings are released. Providers and trade groups argue that premature publication could distort comparisons due to inconsistent data and flawed assessment methods, potentially damaging reputations and triggering unnecessary consolidation among pension schemes.

Inside the 2028 VFM Framework

The framework, due to launch in 2028, will evaluate defined contribution (DC) pension plans based on investment returns, fees, and service quality. Under the plan, master trusts, large single-employer schemes, and open multi-employer defaults must submit data, conduct self-assessments, and assign ratings—but poor scores will not trigger regulatory sanctions at first.

Aegon, a major provider, has warned that even without penalties, early ratings could still provoke commercial and reputational backlash. The company has proposed treating 2028 as a “true test year”, with assessments conducted privately and shared only with regulators. This approach would allow the industry to iron out inconsistencies before public disclosure.

Kate Smith, Aegon’s head of pensions, noted that differing interpretations of data and assessment methods could skew comparisons in the framework’s first year. “A more proportionate approach in the framework’s first year would be for these schemes to carry out their assessments behind closed doors, with data and ratings shared only with the regulators,” Smith said, adding that this would prevent misguided market reactions before the system is fully refined.

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Aegon also suggested exempting closed default arrangements—schemes that will not assess until 2029—from submitting data in 2028. This would reduce strain on the new online reporting system and allow providers to focus on consolidating low-performing schemes.

Governance Gaps and Guidance Needs

Sackers, a pensions-focused law firm, supported the phased rollout but emphasized that trustees and independent governance committees (IGCs) still lack critical details on how the regime will function. Final regulations are expected in January 2025, with a separate consultation on The Pensions Regulator’s Code of Practice planned for the first half of 2027. Helen Ball, a Sackers partner, said clearer guidance is needed to help schemes identify in-scope arrangements and manage overlapping reporting requirements.

Ball added that employer subsidies could complicate assessments, and trustees require direction on how these should factor into evaluations. Without this clarity, she cautioned, schemes risk applying the framework unevenly, undermining its purpose of improving member outcomes.

The Investment and Savings Alliance (TISA) aligned with Aegon’s call to delay public ratings until methodologies are standardized. Renny Biggins, TISA’s head of policy, acknowledged the framework’s potential to benefit millions but stressed that meaningful comparisons are essential. TISA also raised concerns about chain-linking requirements, which could distort performance metrics for receiving schemes and discourage consolidation efforts.

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Instead, TISA recommended simpler cost disclosures and stronger oversight to monitor unintended market shifts as the system evolves.

Trustees Demand Robust, Member-Focused Metrics

A trustee services firm supported a transitional first year, warning that “immature comparisons” should not be allowed to drive potentially significant scheme decisions. It also argued that the proposed service-quality measures remained too limited and should better capture members’ understanding, confidence, communication, digital journeys, and the ability to act on retirement options. A trustee director commented: “For the framework to work, we need to make sure we are comparing like with like. Data needs to be robust and comparable, while giving trustees sufficient flexibility to reflect differences in investment strategy, risk and retirement objectives.” They added that VFM extended “well beyond investment performance and charges”, with member service and understanding also fundamental to good outcomes.

The Society of Pension Professionals (SPP) broadly supported the framework and its phased introduction but urged regulators to clarify its scope. The group identified gaps in how the framework addresses additional voluntary contributions, hybrid schemes, and non-workplace arrangements, as well as future coverage of decumulation and collective DC schemes.

SPP also argued that historical investment performance should carry greater weight than forward-looking projections, proposing these account for no more than around 30% of evaluations. Dr Amanda Cooke, chair of SPP’s Financial Services Regulation Committee, warned that the framework could become a “box-ticking exercise” if it fails to adapt to different scheme structures and member needs. She stressed that compliance costs must remain reasonable relative to the benefits delivered.