IGG Responds to FCA Consultation on the Proposed VFM framework

We have submitted our response to the Financial Conduct Authority (FCA) consultation on the proposed Value for Money (VFM) Framework for defined contribution pensions, set out in CP26/1 – Value for Money Framework.

The consultation proposes a framework aimed at improving transparency, comparability and outcomes for pension savers across the market. We support the FCA’s objective of strengthening the way value is assessed and communicated in defined contribution arrangements, while highlighting a number of areas where further clarification and refinement will be important to ensure the framework works effectively in practice.

Scope of the framework

We recognise that a membership threshold provides a practical way of determining which arrangements should fall within scope of the framework. However, we believe the proposed 1,000-member threshold may introduce unnecessary complexity and could create opportunities for arrangements to structure themselves in a way that falls outside the requirements.

In our view, a more proportionate approach would be to link the threshold to a provider’s overall membership rather than applying a single blanket cut-off.

We also strongly support the inclusion of decumulation within the framework as soon as practicable. Poor at-retirement decision-making has the greatest potential to erode value for members, and we believe any meaningful assessment of value should reflect the full member journey, including how members access their pension savings in retirement.

Measuring investment performance

A key element of the consultation concerns how investment performance should be measured and reported.

While we recognise there are reasonable arguments on both sides of the arithmetic versus geometric averaging debate, we have concerns that arithmetic averages could create unintended consequences if adopted as the primary reporting metric.

In particular, arithmetic averaging can overstate long-term returns in volatile markets and may inadvertently incentivise higher-risk investment strategies simply to appear more competitive under VFM reporting. We believe it is important that the methodology used reflects outcomes in a way that is both transparent and meaningful.

We do, however, support the proposed chain-linking approach for costs and charges, as this more accurately reflects the investment journey experienced by members over time.

Recognising the value of service and retirement support

While investment performance and costs are key drivers of value, we believe the framework should also recognise the important role played by service and member support.

Good service alone does not necessarily equate to good value. Equally, placing too little emphasis on service could discourage innovation in areas that can materially improve member outcomes.

In particular, support provided to members when making retirement decisions – including guided retirement, targeted support and retirement income pathways – has the potential to deliver significant value and should be recognised as the framework develops.

Member engagement

We also highlighted in our response that member engagement is delivered through a wide range of approaches across pension schemes, many of which are tailored to the specific needs of a scheme and its employer.

Surveys are one method of gathering feedback, but they are not always the most effective or comprehensive.

In practice, many schemes use a broader set of engagement tools, including pulse surveys, interactive webinars and member events, helplines and multi-channel support services, as well as employer-led engagement initiatives. Increasingly, schemes are also using behavioural insights and analytics to identify communication needs and provide more targeted support.

As pensions dashboards and new forms of targeted retirement support emerge, we believe engagement metrics will need to evolve to better reflect how members interact with these services.

Data reporting and transparency

We support the proposal to establish a central VFM database, which we believe could improve transparency and consistency across the market.

However, we believe it is important that VFM data is not made publicly available without the corresponding contextual assessment. The data proposed for the framework is not designed to support member-level decision-making, and presenting it without appropriate explanation could lead to misunderstanding or unintended consequences.

We also believe data submission should ideally be facilitated through API-based reporting rather than spreadsheet or web-form submissions, although we recognise that this may present challenges for smaller schemes.

Assessment approach

Overall, we believe the FCA’s proposed Option 1 assessment approach represents the more proportionate and practical model.

While both proposed options aim to deliver meaningful comparisons across arrangements, Option 1 achieves this with significantly less complexity and should therefore be easier for schemes to implement.

We welcome the opportunity to contribute to the development of the framework and look forward to continuing to engage with the FCA and the wider industry to ensure the final framework delivers improved transparency, comparability and outcomes for pension savers.

Explore our full response here.

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