Pensions Schemes Bill 2025 series: Value for money assessments

The Financial Conduct Authority (FCA) and the Pensions Regulator (TPR) have for some time been committed to introducing a new DC Value for Money Framework (VFMfr), which was first proposed under the previous government. The aim is to drive competition on what matters to workplace pension saver outcomes. For example, Government analysis suggests that over a five-year period, a defined contribution pot of £10,000 (with no further contributions) invested into the lowest performing scheme would be worth £10,400, whereas invested in the highest performing scheme it would be worth £15,100 – 46 per cent higher.

The FCA consulted last year on what that framework would look like in the personal pension space and details are set out in our post here. This work remains ongoing. 

The VfM assessment 

The measures in the Pension Schemes Bill relating to the VFMfr will apply to “regulated VfM schemes” and “regulated VfM arrangements” within relevant pension schemes, the meaning of which will be set out in regulations. 

We know that these will include all occupational pension schemes providing money purchase benefits and so would capture commercial Master Trusts as well as other trust-based DC schemes (including hybrid schemes). The workplace pensions roadmap document published alongside the Bill refers to the new value for money requirements applying to DC schemes of “all sizes and types”, but there may be some parameters and exemptions. For example, the requirements may be applied at an arrangement level, and may only require the VfM assessment to be made of the scheme’s default arrangement(s), as was the case under the proposals put forward by the previous administration. 

The Bill does not, itself, set out all of the detail of the VFMfr for trust-based schemes. Instead, it includes regulation making powers to impose a duty on trustees to assess the value for money across three key areas:

• investment performance; 
• costs and charges; and 
• quality of services

The detail of how the assessment is to be made will follow in regulations, but we have gives some indication of the form it may take. For example, it appears that the scheme’s trustees could be required to assess the metric data for a scheme or arrangement with: 

• the metric data of a prescribed number of “comparator” schemes or arrangements selected by the trustees – and regulations could specify how trustees are to go about selecting such comparator;or
• one or more relevant benchmarks. It appears that such a “benchmark” could be specified in regulations or approved and published by TPR

Member satisfaction surveys may also form part of the assessment.

The results of those assessments would be reported to TPR and published. The focus is on considering overall value and shifting mindsets away from looking purely at cost.

Regulations may be made setting out the consequences of failure to comply with value for money provisions. These may include issuing compliance notices and / or penalty notices. The amount of the penalty will be specified in the regulations but there will be some parameters, providing that a penalty imposed in respect of a failure or contravention must not exceed £10,000 for an individual, or £100,000 in any other case. 

The ratings 

The VFMfr introduces a standardised grading system. Schemes will be rated as either:

• giving value for money (the “fully delivering” rating); 
• not currently giving value for money with identified actions to improve (the “intermediate” rating); or 
• failing the VFM test entirely (the “not delivering” rating). 

As well as determining that the scheme is not delivering value for money, in order to award a “not delivering" rating, one of three specified conditions will need to be met. These are:

• Condition A – the trustees determine there is no realistic prospect of the scheme or arrangement delivering value for money within a reasonable period;
• Condition B – the scheme has been rated “intermediate” in each of a specified number of VfM periods immediately before this one; or
• Condition C – TPR notifies the trustees that TPR considers they have failed to comply with an improvement or action plan relating to the scheme or arrangement in the VfM, and TPR does not consider the failures to be so minor that they should be ignored.

There is provision in the Bill for regulations to be made specifying more than one “grade” of intermediate rating. A consequence of a “not delivering” rating, and some types of “intermediate” rating may include the preparation of an “action plan” to be shared with TPR, notifying participating employers and closing the scheme to new employers. 

An important new power for TPR will be the ability  to require a DC scheme which is not delivering value for money for members to wind up and to transfer the DC pension rights in that scheme to another DC scheme which is reasonably expected to result in the generality of scheme members receiving improved long-term value for money. 

The Bill also gives TPR a power to appoint trustees to schemes which have a "not delivering" or "intermediate" rating to secure that "the trustees as a whole have the skills or knowledge necessary for ensuring that the scheme, or an arrangement under it, improves its performance in relation to value for money". 

Comment 

Implications for trustees - Whilst the first VFMfr assessments will not take place until 2028, trustees should be aware of the push towards value for money. Trustees may wish to take action in readiness to improve their arrangements performance due to the public nature of assessments, potential for league tables to emerge utilising the VFMfr data and employers/advisers being more focused on the VFM delivered for pension savers. 

Implications for employers – There are no new duties on employers relating to the VFMfr – this had been considered in the consultation on the DC reforms but responses raised concerns about imposing additional burdens and costs, particularly on smaller employers However, employers can expect to receive more detail on the performance of their chosen DC arrangements. Where schemes have an “intermediate rating”, employers are likely, as a matter of best practice, to want to consider those and address any concerns which have been identified. This could, for example, include the employer deciding to change arrangements. 

Implications for the market - As things stand, TPR is concerned that competition is failing to maximise long-term value for savers. Our experience is that employers who offer a DC scheme have not either switched provider or thought about switching for some time. The VFM frameworks proposed by the FCA and under Pensions Schemes Bill should drive competition based on value, with suppliers put under competitive pressure by employers even in cases where they do not switch.  We can also expect the VFMfr to nudge the dial further on consolidation especially into Master Trusts as larger schemes can potentially benefit from scale in a way that smaller schemes cannot. 

When is all  this happening? 

The first data publications and assessments under the new VfMfr are expected to take place in 2028, and annually thereafter. The government believes that its implementation will “support the cultural shift needed in the DC pensions market”. Clearly, there is much more detail to come – the statutory framework in the Pension Schemes Bill is only the beginning of the story. Royal Assent is not expected until Q1 2026 at the earliest with consultations on draft regulations setting out the detail of how the VfM assessment will operate to follow – the indicative timetable in the roadmap document suggests we can expect draft regulations during 2026/27.

However, the industry is already preparing for the next stage. On 22 July, Pensions Minister Torsten Bell hosted a roundtable event as part of the “Pound for Pound” initiative, which will look to test new approaches to measuring VfM “using anonymised performance comparisons and insights from Australia’s Super Ratings” (a research and consulting firm). The first in a series of planned events, reports suggest this roundtable focused on insights from the equivalent Australian model for showcasing schemes’ value.

The Burges Salmon Pensions & Lifetime Savings team is well-placed to advise on all aspects of DC pensions law, including the new requirements of the Pension Schemes Bill – please do get in touch with Susannah Young or your usual Burges Salmon contact if there is anything you would like to discuss.