Value for Money consultation response and further consultation

In January the FCA published a response to its consultation on the Value for Money (VfM) Framework together with a further consultation on proposed changes and a discussion paper.  The idea behind the VfM Framework is to provide a consistent framework for assessing the performance of workplace DC arrangements, and to require pension providers to take action where an arrangement fails the VfM test.  The consultation relates to firms operating personal pension schemes.  It is intended that an equivalent framework will apply to occupational pension schemes, but SSASs will be out of scope.  

Scope of VfM Framework

The VfM Framework will apply to default and “quasi-default” arrangements which contain assets in accumulation and have been operating for at least one calendar year.  A default arrangement is where contributions to an automatic enrolment scheme are invested without the employee having made an active choice.  “Quasi-default” is broadly used to describe the situation where a pre-automatic arrangement of a workplace pension scheme is used by at least 80% of employees and ex-employees of at least one employer.  An arrangement with fewer than 1000 members will only be in scope if it is the sole default/quasi-default arrangement provided by a scheme or is the largest such arrangement.  The FCA intends to exclude from scope “accidental workplace SIPPs”.  This is where two or more employees have chosen to join a SIPP without any employer involvement, but the SIPP would otherwise be deemed a “workplace” SIPP because the employer makes contributions to it (eg where an employer allows employees to nominate a personal pension scheme to which employer contributions will be paid, and two employees coincidentally nominate the same arrangement).

Assessment criteria and changes from consultation proposals

The consultation proposed a detailed set of metrics for assessing an arrangement’s performance, including investment performance and quality of service.  The consultation response proposes some significant changes to the original proposals.  These include:

• the use of forward-looking as well as backward-looking investment performance metrics;
• a shorter period over which past investment performance must be assessed;
• a requirement to compare arrangements across a much wider comparator group than the three originally proposed.  This will be enabled by a central VfM database;
• different criteria for assessing quality of service (eg promptness and accuracy of core financial transactions) with the proposal for a member survey dropped for the time being;
• a change to the Red/Amber/Green ratings system, with a “Dark Green” rating for top performers and a “Light Green” rating for arrangements delivering value but with areas for improvement.

Consequences of a Red or Amber rating

A Red rating means that an arrangement has been assessed as not providing value and not capable of being improved sufficiently to provide value.  Members must be bulk-transferred out of a Red-rated arrangement where this is in members’ best interests, a strengthening of the original proposals which were simply that a transfer had to be considered.

An Amber rating means that an arrangement has been assessed as not providing value, but as capable of being improved to provide value.  Contributions from a new employer cannot generally be accepted into an Amber-rated arrangement.  An arrangement assessed as Amber for three consecutive years will generally be required to be rated as Red the following year if it is still assessed as not providing value.

Next steps

The current consultation closes on 8 March 2026. The FCA is currently working towards the first VfM assessments being required in 2028.