On 8 August 2024, the Financial Conduct Authority (FCA) published Consultation Paper CP24/16: The Value for Money Framework. In CP24/16, the FCA is consulting on detailed rules and guidance for a new value for money (VFM) framework for savers invested in default arrangements of workplace defined contribution (DC) pension schemes.

The proposed VFM framework aims to reduce the number of savers with workplace personal pensions that are delivering poor value, and to drive better VFM across the workplace DC market through increased scrutiny and competition on long-term value rather than predominantly cost. The FCA has developed its proposals based on market feedback to a previous joint consultation paper with the Department for Work and Pensions (DWP) and The Pensions Regulator (TPR) on a proposed VFM framework.

The proposed framework

The FCA is proposing to introduce 4 elements through the new VFM framework – it will:

  • Require the consistent measurement and public disclosure of investment performance, costs and service quality by firms for all such arrangements against metrics that the FCA believes will allow VFM to be assessed effectively.
  • Enable those overseeing and challenging an arrangement’s value (Independent Governance Committees and Governance Advisory Arrangements for contract-based schemes) to assess performance against other arrangements, and require them to do so on a consistent and objective basis.
  • Require public disclosure of assessment outcomes including a ‘red, amber, green’ VFM rating for each arrangement.
  • Require firms to take specified actions where an arrangement has been assessed as not VFM (i.e. red or amber).

Although CP24/16 relates to rules for FCA-regulated firms operating contract-based pensions, they are designed to be suitable for application across the DC workplace pensions market.

Next steps

The deadline for responses to CP24/16 is 17 October 2024.

The FCA plans to publish a final policy statement “in due course”, including Handbook rules and guidance setting out the VFM framework to be implemented. In the meantime, it intends to offer roundtables and stakeholder events that will include discussion of practical considerations to inform the development direction of the framework.

In the consultation, the FCA also notes that the Government has recently announced its intention to bring forward primary legislation which will contain measures to apply the VFM framework to trust-based schemes. The FCA says it will continue to develop its approach to implementation in light of this.