Pensions Value for Money Framework: What employers need to know

Driving a long-term focus on value across the pensions sector is a key priority for government, regulators and the pension industry. That is why we are pleased to see a Value for Money (VfM) framework being introduced through the new Pension Schemes Bill.

The concept of a VfM framework is not new. Australia’s pensions system, for example, already has a similar process in place, and it has been credited for bringing more transparency to their pensions system. That is why the UK government and regulators are keen to adopt a similar framework here.

What’s the aim of the VfM framework?

The framework is a joint initiative across government and regulators. Its aim is to promote consistent measurement and disclosure of value metrics across Defined Contribution (DC) workplace pension schemes.

Record numbers are now saving for their retirement and this new framework aims to shift the focus from purely cost to a holistic view of value. This is particularly important for those automatically enrolled who do not usually choose where their savings go.

As well as improving the value that pension schemes provide, the framework also aims to deliver further consolidation and increase scale in the pension market, ensuring that only those schemes that can demonstrate VfM remain.

The framework will, at first, only focus on the saving stage of an individual pension journey and will expand to the retirement phase at a later date.

What is included in the framework?

Pension providers will be required to publish data on key aspects of their pension scheme including investment performance, costs and charges and quality of service.

Governance bodies of those pension schemes, such as trustee boards or independent governance committees, will then be able to assess whether their scheme offers value for money as well as being able to make comparisons with others in the market.

As a provider, we are preparing for the rollout of the VfM framework and continue to work with the government and regulators on the exact design and approach.

When will the framework be introduced?

The government has proposed that pension schemes will need to publish their first set of VfM data in Q1 2028 for the 2027 calendar year.

What will it mean for employers?

As an employer, you won’t have any direct legal duties under the VfM framework. However, you will have access to clear, consistent and comparable data on more than just costs and charges from your pension provider.

This will make it easier for you to check that your provider is offering you and your employees good value, for example good returns on savings. It will also help your workplace pension to be an effective tool in retaining and attracting new talent.

Ultimately, the framework will provide more confidence that your employees’ retirement savings are in a pension scheme that offers good value as well as delivering a good outcome.