Critical changes are needed for the newly introduced Value for Money framework to be in any way effective, according to former pensions minister Guy Opperman.
In a recently published op-ed, Opperman claimed that VFM, in the form passed in the recent Pension Schemes Act, risked becoming an “exercise in bureaucracy” without the impetus needed to make actual meaningful change to the pensions industry.
“There is zero chance of VFM having any meaningful impact on the pensions market before 2029. Many privately say to me that it will not be introduced before the end of this decade at best. That should alarm everyone involved. Moving at pace isn’t something our industry is known for, but on this occasion, we must move heaven and earth to get it done,” says Opperman.
Following changes announced by the Financial Conduct Authority earlier this year, the pension scheme investing rating VFM framework includes expanding the red, amber and green ratings to add new light and dark green ratings, plus fewer cost and backwards-looking performance metrics, the addition of forward-looking metrics, and a streamlining of the original service metrics. The comparison to inform the rating will not now be with three other schemes but a “commercial market comparator group”.
The former pensions minister, who served in a Tory cabinet in the role from 2017 to 2022, was still broadly supportive of VFM, arguing that its principle was sound, and that pension savers deserve performance metrics, transparency, accountability and better outcomes than was currently being provided.
However he also compared VFM negatively against the Australian legislation on which it was based, claiming that the Australian style was “meaningful, comprehensible and consequential”, and this UK VFM framework “is not what we have got.”
Opperman instead urged lawmakers to act with speed to increase the chances of VFM becoming meaningful legislation that can have direct impact on the industry before 2029.
“The uncomfortable truth is that quality across the pensions market is still too inconsistent. Investment performance varies materially. Service standards vary materially. Innovation varies materially. Too often weak performance escapes meaningful scrutiny,” says Opperman.
“Employers still focus excessively on cost during selection exercises. Advisers often default to familiar names because nobody has ever been criticised for choosing the industry incumbent. Providers face too little pressure to improve administration, customer service and retirement outcomes.”
It was actually Opperman himself who began the process of creating a UK VFM framework, beginning this process as minister back in 2018, with a discussion paper on the subject published in the autumn of 2021.
This is not the first time that Opperman has been critical of the VFM framework in its current form. At a previous Aptia conference (a firm for which he acts as an adviser), he described the “madness” of the legislation, in areas such as two regulators (The Pensions Regulator and Financial Conduct Authority) which supposedly “don’t talk to each other”, having oversight of the framework.