What does the FCA’s new Value for Money (VFM) consultation mean for UK DC pensions?

With global events meaning that the “cost of living crisis” seems set to become a permanent feature for many for the foreseeable future, many of us now pay more attention to making sure that our money is achieving better value. And pensions are not, and should not be, exempt from that pressure.

With that in mind, the launch of the Financial Conduct Authority’s (FCA) further consultation on the Value for Money (VFM) framework for defined contribution (DC) pension arrangements is an important development. Published jointly with The Pensions Regulator (TPR) and supported by the Department for Work and Pensions (DWP), this paper updates proposals first published in 2024 and aims to shape how workplace pension schemes demonstrate that they deliver good value to savers.

For years, regulators have grappled with the challenge of defining and measuring what “value for money” means in the context of DC pension schemes, which rely on individual contributions and investments to build retirement savings. The new framework is intended to ensure that people saving into workplace pensions aren’t paying high fees for poor performance or weak service and can clearly see how their scheme stacks up against others in the market.

Why a new framework matters

The majority of ongoing pension provision for private-sector employees in the UK is into DC pensions. Unlike defined benefit schemes, where retirement income is based on a formula, DC pensions depend on contributions and investment performance. This means that costs and charges, investment choices and even service quality directly affect final pension outcomes. Without a consistent way to assess value, savers can struggle to judge whether their scheme is competitive or efficient.

The new framework is designed to provide that consistency. It moves beyond simple cost comparisons to consider investment performance and service quality, encouraging a shift in focus from short-term costs to long-term value. The regulators believe this will foster better competition among pension providers and, ultimately, improve outcomes for members.

What’s new in the latest consultation?

This latest consultation builds on the feedback received from an earlier consultation in August 2024 proposes a number of significant refinements. Let’s take a brief look at them because they’re really quite interesting!

1. Update to the approach to grading: Perhaps the most obvious change is that there will now be a four-tier rating system for grading assessment results. Two of these indicate value (Dark Green and Light Green) whereas Amber indicates value is not being delivered but it could be improved to do so. And finally, Red indicates an arrangement that cannot be improved to reach value and drastic measures are required, such as the potential transfer of members. This new four-tier system replaces the earlier three-point “red, amber, green” approach. We had called for this to be changed and therefore we’re pleased that the new system will give clearer distinctions between top performers and those requiring intervention.
2. Forward looking metrics: We’re also pleased that the regulators have changed their view on the use of forward-looking metrics alongside traditional backward-looking data. This is also an area where we had asked for change since forward-looking metrics should give a more meaningful indication of how schemes expect to perform for savers in the future.
3. Comparison against centralised data: A major change from the previous proposals is that rather than assessing VFM against a specified group of comparator schemes, it is now intended that schemes will compare themselves against data collated in a centralised database. The consultation does not go into much detail about how this would work in practice so we hope that using a database for comparison could be more efficient than having to go and find specific comparators but, on the flip side, it is unclear how this database will be funded and also how easy it will be for schemes to interact with it.
4. Reporting of costs and charges: The new proposals streamline how costs and charges are reported. This aims to strike a balance between transparency and practicality for providers and we think this is a move in the right direction to reduce the compliance burden.
5. Assessing quality of service: This remains one of the trickiest aspects of the framework, because there isn’t yet a universal way schemes can measure or report service metrics. The FCA acknowledges this and proposes a more limited set of service quality indicators to begin with, with further development expected over time.

Notably, the previously suggested customer satisfaction survey will not be included at launch, pending further industry engagement.

Timeline and next steps

The consultation runs until 8 March 2026, and regulators are encouraging responses from a broad group of stakeholders, including pension providers, trustees, industry bodies, consumer groups and savers themselves.

Currently the first mandatory VFM assessments under this framework are expected in 2028. This gives schemes around two years to prepare for the data-collection, reporting and assessment changes envisaged by the framework.