With the value for money (VFM) consultation due to close later this week, industry experts have argued that several components of the VFM requirements are “overly complicated” and “inflexible”.

In August, the Financial Conduct Authority (FCA) launched a consultation seeking views on the proposed rules and guidance for the VFM framework for contract-based pension schemes.

It outlined its proposals for the VFM framework for savers invested in default arrangements of workplace defined contribution (DC) schemes, including a traffic light system in the public disclosures of VFM assessments.

The Pensions Management Institute (PMI) welcomed the FCA’s VFM framework for DC workplace pension schemes and agreed that it would play a positive role in improving member outcomes.

However, the PMI said it was concerned that the “extensive” set of disclosures proposed by the FCA required too much detail in some places for little benefit and could compromise providers' ability to "clearly" demonstrate VFM in the areas that have the most impact on savers.

PMI policy and public affairs committee chair, Tim Box, argued: “If the VFM framework is to succeed, it is vital that providers are not hamstrung with requirements that are overly complicated and onerous.”

In particular, the PMI questioned why asset allocation disclosure, particularly a split of UK and non-UK assets, was required when the FCA said this would not form a direct part of the VFM assessment process.

In addition to this, the PMI was worried that some aspects of the regulatory regime were too “simplistic and inflexible”.

“The proposed red, amber, green (RAG) assessment is too blunt and severe. In reality, under these proposals, anything short of a green rating is a failure,” Box added.

“We would prefer a rating system that recognises situations where only minor improvement is needed and also gives recognition of where VFM expectations have been exceeded.”

These concerns were echoed by the Society of Pension Professionals (SPP), who said despite there being three indicators, in practice the outcome was binary, VFM or not VFM and the current proposals therefore place overtly negative connotations on an amber rating.

Given this, the SPP recommended the proposed amber rating be changed so that instead of being a “broadly negative assessment”, it would be instead considered “VFM with room for improvement”.

“And for that improvement to be deliverable, and required to be delivered, within a definitive timeframe of say two years,” it added.

Furthermore, the SPP added the ability for decisive action for red-rated schemes was critical for the success of the framework and until firms could do bulk transfers without savers’ consent for contract-based schemes, the framework was “really lacking a key component to make it successful”.

In addition to changing the amber rating for the RAG rating, the SPP suggested that non-workplace pension products should be brought within the scope of any new VFM framework in due course.

It also argued that the proposed threshold of 1,000 members should be halved to 500 and that service quality metrics needed greater attention.

SPP president, Sophia Singleton, said: “The SPP supports many of the proposals being put forward within this consultation and the overarching objective of improving value for money, but at the same time we are concerned about the volume of data that the proposed framework will require providers to collect and communicate, which in some cases appears disproportionate.

“We also believe that a change to the proposed amber rating is necessary to increase the effectiveness of the framework and increase the chances of delivering value for money for more savers.”

Meanwhile, Box suggested: “The FCA needs to give extensive consideration to the manner in which VFM information may be communicated to members.”

“Information which is technically correct but incomprehensible could either be useless to savers or, worse, lead to bad decisions being made because of a lack of understanding.”

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