The government should be genuinely congratulated on the 2026 Pension Schemes Act. So much of the Act is very good; and it is a credit to the Labour Ministers that they have managed to create such a large piece of primary legislation covering so many issues. The secondary legislation will be massive and take many years, but so be it. There remains one serious flaw, however. The Value for Money proposals need a surgical redraft. The principle behind VFM is sound. Pension savers deserve performance metrics, transparency, accountability and better outcomes.
I should declare an interest here. I started this process as a minister back in 2018, and we finally managed to get a discussion paper out the door in the autumn of 2021, post Covid. But the Australian-style aspiration of a meaningful, comprehensible and consequential VFM framework is not what we have got. That is what we hoped to achieve when this was first discussed at the Department of Work and Pensions, after I had studied the success of Australian VFM performance tests.
The practical truth is that the proposed UK VFM will be an over engineered, slow moving regulatory exercise that has no consequences. It will cost a fortune, and it will arrive many years too late to matter. I do not want that to happen.
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.
Giving the government the benefit of doubt, under the current plans, regulators are not expected to publish final proposed rules until the end of this year. The industry will then need a lengthy testing period to ensure firms are genuinely comparable, data systems function properly and unintended market distortions are avoided.
In reality, October 2028 is likely to be the first time the market sees meaningful public VFM results without a trial year muddying the waters. Meaningful regulatory intervention would come only after that. That means 2029 at the earliest before VFM starts to influence behaviour in any serious way. And I have massive doubts about such a time frame. I bear the scars of the pensions dashboard timeframe as a Minister. This has many echoes.
The DWP estimates there will be around 500 defined contribution schemes left by that point. Frankly, I suspect the real number could be lower given the consolidation pressures already embedded within the Pension Schemes Act, the Mansion House agreements, and the amount of wider financial services amalgamations that we are seeing.
The largest master trusts and providers already dominate assets and membership. If the forthcoming scale tests do not make clear who the long term winners and losers are, then policymakers will have missed a major opportunity.
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.
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.
We have seen in Australia and elsewhere that properly implemented VFM frameworks can improve standards and accelerate accountability. But those systems worked because they were decisive, transparent and focused on maximising saver returns. The UK risks turning VFM into an exercise in bureaucracy instead.
One of the biggest flaws in the current approach is that firms are effectively being asked to mark their own homework. That is not a serious accountability framework. As a Minister I specifically opposed such an approach. Turkeys don’t vote for Christmas and no scheme is going to label themselves ‘amber’ or ‘red’ when doing so could damage their reputation, accelerate member exits or even threaten their long term viability. This is particularly true when more than 90 per cent of DC assets and members are concentrated among a relatively small group of major providers.
The answer is not to abandon VFM; it is to simplify it and move faster.
First, regulators should focus initially on the largest schemes where the overwhelming majority of members and assets sit. Stop trying to boil the ocean. The largest 30 to 50 providers should publish comparable VFM data in 2027, with formal measures introduced in 2028. Smaller schemes could initially participate voluntarily.
That would allow the Financial Conduct Authority and The Pensions Regulator to concentrate supervisory resources where they can make the biggest difference, rather than dissipating effort across thousands of small schemes with limited market significance.
Second, independent assessment must become mandatory. No more marking your own homework. Independent third parties should conduct VFM assessments and data validation to ensure consistency, credibility and comparability.
There are already firms with the expertise to do this, including organisations with direct experience of implementing similar frameworks internationally. Why would we ignore this to mark our own homework? It defies belief.
Third, Government and regulators need to stop ignoring the retail market. If the non-workplace pensions market is heading towards £1 trillion in assets under management, it cannot remain outside the scope of meaningful VFM scrutiny. Work on a retail framework should begin at pace, and ready for 2028. This would level the playing field and give savers information that allows for proper comparison.
What savers now need is delivery, accountability and speed. Some providers will struggle under the spotlight. But that is a good thing. For me, this is about the member. And the member will not benefit from the present VFM proposals.
