Every DC fiduciary wants better value for money for their members. To that end, we applaud UK regulators’ ambition to create a framework that improves transparency, strengthens accountability and focuses on the outcomes delivered to savers.
But an overly subjective regulatory regime could weaken accountability and results. We propose the following steps to strengthen this proposed framework.
First and foremost is keeping net investment performance, what members actually receive after all charges, central to VFM assessments. This is the most objective, comparable evidence of value delivered, and focuses attention on improving retirement outcomes.
VFM should also change behaviour, not just expand reporting. It’s important it creates clear responsibility for investment decisions, costs and governance, so trustees and providers are judged on outcomes, not process.
It’s also important that subjective measures don’t dilute outcomes or excuse underperformance. Qualitative factors can provide context, but they must not outweigh outcomes. If narratives dilute the evidential weight of net returns, the regime becomes easier to game and harder to enforce.
We’d also like to see VFM relate to single-vehicle default structures where possible. The choice of structure matters: a single default vehicle (such as a target date fund) gives a continuous read on performance, costs and risk for the strategy members are invested in, improving transparency, monitoring and governance decisions.
Similarly it’s important to avoid overly comparator-driven approaches. Peer comparisons can inform, but if VFM becomes ‘how close are you to the average?’, it will encourage herding. Providers would then minimise deviation rather than optimise long-term outcomes.
Schemes should be encouraged to adopt differentiated strategies that align with membership characteristics. Default strategies should reflect membership characteristics: age profile, pay patterns, contributions and likely retirement choices. Aligning strategy to these characteristics clarifies objectives.
It is also important to anchor comparisons to simple, investable reference points. Comparisons work best when the objective is clear. Simple, investable reference points (such as low-cost market index comparators) show the opportunity cost of complexity and help separate skill from style.
Members experience compounding, not ‘average’ years. So performance data should reflect the actual member journey and sequence of returns. This is closer to economic reality and makes VFM judgements more reliable. While arithmetic averages may be convenient, they can mislead. If used, label them as an administrative approximation and add plain-language guardrails.
Cost comparisons only work if ‘net’ means the same thing everywhere. Performance fees, private market costs and other non-headline charges reduce member pots and must be treated consistently; otherwise VFM rewards disclosure differences, not value.
It’s important to constrain forward-looking projections so they provide context, not determinants of value. Projections help explain strategy and risk, but they are assumption-driven and easy to optimise, particularly through composite metrics that blend actual and forecast data and that create false precision.
Regulators should insist on meaningful challenge from third-party experts. Where judgement matters, a self-assessment approach will likely drift towards narrative. Instead, independent experts should test assumptions and interrogate the selected data.
Finally it’s important to recognise that members have different journeys, with investment objectives becoming more varied and nuanced as they approach retirement. Regulating purely on the basis of pot-size maximisation won’t work for everyone.
In summary, VFM assessments should be outcomes-led, comparable, and hard to game, anchored in realised and consistent net performance and clear membership-aligned objectives. We believe schemes should use qualitative factors and projections to explain, not to excuse; adopt simple reference points to sharpen accountability; and require genuine independent challenge.
Managed this way, VFM can avoid becoming a compliance headache, and can transform regulatory ambition into better member outcomes.
