The Financial Conduct Authority (FCA) has published its consultation on a new value for money (VFM) framework for contract-based schemes. Under the proposed framework, schemes will be publicly rated red, amber or green based on a range of metrics to demonstrate how they perform on long-term value. This latest consultation is a continuation of work with the Department for Work and Pensions (DWP) and the Pensions Regulator (TPR) to implement a consistent VFM framework across all workplace defined contribution (DC) schemes. Feedback from this consultation will inform legislative developments for trust-based schemes as part of the forthcoming Pension Schemes Bill, as announced in the King’s Speech.
The proposed framework is designed to work in conjunction with the FCA’s Consumer Duty obligations and will apply initially to default arrangements in the accumulation phase, subject to a membership threshold test. The main elements are:
Providers must publish all framework data by 31 March each year, using data collated up to 31 December of the previous year. Independent Governance Committees (IGCs) must then use this data to conduct and publish VFM assessments by the end of October. The FCA proposes to extend the content of the IGC’s annual report in line with the new VFM framework.
The FCA expects ‘third-party league tables’ to emerge naturally as the framework data becomes available, which will stimulate further competition. It also suggests exploring how VFM information could feed into the pensions dashboards to support members.
In addition to the above, the FCA’s consultation document also proposes to require the public disclosure of asset allocation for ‘in-scope’ arrangements, with a split between UK and non-UK assets. (Most DC trust-based schemes are already subject to asset allocation disclosures, albeit the split is optional.) The FCA defines UK asset types – for example, for listed investments, “UK assets should include all those with a primary listing on a UK market and constituents of UK market indices.” This shift follows the previous Government’s announcement to boost investment in UK businesses. This disclosure does not form part of the VFM assessment or rating.
The consultation closes on 17 October 2024. In a press release, TPR states “We encourage trustees of trust-based schemes to respond to the technical detail of the consultation, with a view to ensuring the final framework can be applied effectively to trust-based schemes.”