Industry respondents have urged the government and regulators to refine aspects of the proposed Value for Money (VfM) Framework for pensions, warning that certain measures could distort comparisons between schemes and risked unintended consequences for savers.

The consultation, launched jointly by the Department for Work and Pensions (DWP), the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR), proposed that schemes publish “clear data” on performance, costs and service quality, alongside a colour rating system designed to make comparisons easier and prompt action where schemes are delivering poor value.

While many respondents backed the direction of travel towards greater transparency and comparability, several industry bodies and providers have highlighted areas for improvement in the framework.

PensionBee warned that proposals encouraging the use of forward-looking metrics (FLMs) in performance scoring risked introducing what it described as “crystal-ball gazing” into scheme comparisons.

In its response to the consultation, the provider stressed that it supported regulators’ ambition to improve transparency, comparability and accountability across the pensions market.

However, it cautioned that incorporating projected returns - particularly those linked to illiquid private market assets - could prove misleading.

According to PensionBee, such projections relied heavily on modelling assumptions, valuation methodologies and smoothing techniques, meaning results may not be meaningfully comparable between schemes.

The provider also warned that combining historical performance data with projected returns could create headline scores that gave “an illusion of precision”, potentially distorting the central database used to judge VfM and influencing comparative benchmarks used to generate scheme ratings.

PensionBee chief business officer UK, Lisa Picardo, explained that "in private markets - where valuations are infrequent, methodologies vary and outcomes hinge on timing and exit conditions - the scope for over-optimism is far greater".

“Embedding these metrics into comparative scoring could distort VfM ratings and incentivise schemes to prioritise projected returns over realised performance,” she added.

Therefore, PensionBee urged the FCA to drop plans to incorporate FLMs into the framework and instead focus on observable, risk-adjusted historic outcomes.

It also called for independent validation of modelling assumptions and a full industry dry run before any public disclosure of ratings.

Similarly, the Society of Pension Professionals (SPP) supported the aim of improving comparability across schemes but suggested several technical changes to the proposed framework.

The SPP argued that non-workplace pensions should be brought within the scope of the VfM regime, given their role in the wider retirement savings landscape, adding that this may require reassessment of the regulatory and legislative remit of the relevant authorities.

It also opposed the proposal to use arithmetic averaging when measuring investment performance.

SPP DC committee chair, David James, suggested that geometric averaging offered a more accurate representation of members’ investment experience, as it captured the effects of compounding and the cumulative impact of volatility on returns.

The SPP also cautioned that adopting chain-linking for cost and charge data could introduce operational complexity, suggesting further industry engagement to determine whether simpler alternatives could achieve comparable reliability.

In addition, the organisation warned that some data requirements within the proposals may be disproportionate for smaller schemes, arguing that the central submission mechanism and broader framework should include thresholds, transitional arrangements and simplification where appropriate.

Concerns were also raised about the distinction between light green and dark green ratings in the proposed system, with the SPP warning that relatively small metric changes could lead to frequent movement between the two categories, risking confusion for savers.

Despite these reservations, James said the SPP supported several aspects of the framework, including extending VfM to default pension benefit solutions and improving comparability between multi-employer arrangements.

Elsewhere, TPT Retirement Solutions also backed the objective of improving transparency and member outcomes but warned that aspects of the design could undermine the framework’s effectiveness if left unchanged.

The firm argued that risk-adjusted net investment performance should remain central to VfM assessments, particularly during the growth phase of saving.

TPT head of policy, Ruari Grant, urged regulators to be cautious about diluting the importance of performance with subjective forward-looking metrics.

“In the growth phases, net, risk-adjusted investment performance is the most effective means of improving member outcomes, and this should not be diluted by tangential economic objectives and subjective assumptions,” he added.

Grant also stressed the need for better alignment between the VfM framework and other reforms, including guided retirement and proposals relating to scheme scale and consolidation.

Meanwhile, Lumera suggested the framework could expose weaknesses in legacy technology across the pensions industry.

The insurtech firm warned that schemes relying on fragmented systems may struggle to build a coherent view of performance, risk or member experience, particularly as the regime would require consistent, high-quality data and more frequent reporting.

Lumera chief commercial officer, Peter Roos, claimed the framework would mark “a decisive shift to evidence-based outcomes”.

“While the direction of travel is positive for members and the market as a whole, a more demanding regulatory environment will quickly expose gaps in the infrastructure of schemes still relying on fragmented legacy systems,” he warned.

“VfM is not just a governance reform - it is a technology catalyst.”

ZEDRA also welcomed the framework's broader objectives but called for targeted refinements to ensure assessments remained robust and proportionate.

ZEDRA client director and head of governance advisory arrangement, Anne Sander, argued the framework should include five-year forward-looking investment performance metrics, alongside one-year measures for members approaching retirement, to provide a more meaningful assessment of expected outcomes.

She also called for greater transparency on the capital market assumptions underpinning such projections, enabling governance bodies to challenge them effectively.

However, Sander warned that some service and complaints metrics may not fully capture the breadth of services delivered by schemes, arguing that governance bodies should retain the ability to apply qualitative judgement where appropriate.

The consultation on the proposed VfM framework closes on 8 March, with the first scheme assessments expected to take place as early as 2028.

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