Aegon has welcomed key improvements in the FCA’s latest consultation on its Value for Money framework, but warns that further careful consideration is needed in several critical areas.
Commenting on the FCA Consultation Paper CP26/1 on the Value for Money framework, which will also feed into the VFM framework for trust-based schemes, Steven Cameron, Pensions Director at Aegon UK said:
“We welcome many of the changes the FCA is proposing to the Value for Money framework. A lot has changed since the previous consultation back in August 2024, which means the scope and overall purpose of the VFM framework across both contract and trust-based workplace pensions needs reconsidered.
“We had particular concerns over the Red, Amber, Green ratings proposed previously and in particular the commercial cliff edge between Green and Amber rated arrangements, with the latter having to close to new employers. We welcome the move to a 4 rating system with Light and Dark Green, but the implications will need thought through in detail to ensure the new approach avoids unintended consequences.
“One of the most significant changes from previous proposals is the creation of a centralised data base which will compile commercial market averages to aid ratings. While this replaces the self-selection risk of governing bodies selecting their own three comparator arrangements, the stakes for making sure the averages are fair and meaningful are high.
“We’re also pleased the FCA has removed some of the data metrics within the framework. The previous proposals included a huge number of data points, not all of them particularly relevant to Value for Money, and risked governance bodies losing sight of the wood for the trees.
“We support removing 15 year investment past performance. It also makes sense to defer most customer service metrics around engagement for now.
“However, there’s an additional inclusion of forward-looking investment performance data, with trustees and schemes being given flexibility around assumptions and approach. This creates a real risk of subjectivity and lack of comparability.
“Perhaps the most significant development since the previous VFM consultation has been the Pension Schemes Bill’s ‘megafund’ requirement under which all multi-employer schemes and providers will need to have a Main Scale Default Arrangement of at least £25bn by 2030. In the multi-employer space, this will lead to widespread consolidation and far fewer but larger pension schemes and default arrangements. We believe carrying out a full VFM assessment of arrangements which will be closed is non-productive. The FCA is proposing some limited concessions here, but unfortunately the FCA is saying even those arrangements in the process of a Part VII transfer or a contractual override exercise will still need to produce the framework data.
“The timetable for implementing the framework remains very challenging, particularly with so many other Pension Schemes Bill changes. Importantly, before members of poor value contract-based pension schemes can be transferred into those offering better value, we need contractual override. This makes it even more important that the FCA advances its promised consultation here without further delay.”
