The Pensions Regulator (TPR) has called on defined contribution (DC) trust-based pension schemes to help shape the proposed value for money (VFM) framework, highlighting the framework as "one of the biggest revolutions in pensions policy since auto-enrolment".

The Financial Conduct Authority (FCA), working with TPR and the Department for Work and Pensions, recently launched a consultation on the proposed rules and guidance for the VFM framework for contract-based pension schemes.

In a blog post, TPR interim executive director of strategy, policy and analysis, Nina Blackett, highlighted the consultation as an “important point” on the journey towards a pensions market with a “laser-like” focus on value.

“The consultation is the culmination of years of engagement with industry, with dozens of roundtables and discussions with diverse stakeholders to try and build consensus on a way forward,” she stated.

“We understand assessing value is not straightforward, but we believe the proposals outlined in the FCA’s consultation are a significant step forward in moving the entire pensions industry away from focusing on cost and towards improving value for savers.”

However, she acknowledged that “we can’t deliver this change alone”, stressing that the regulators are looking to work with industry to ensure the VFM framework achieves what is intended: enable effective competition between schemes and facilitate employer choice, reduce the number of savers with workplace pensions that deliver poor value, and drive better value across the whole workplace DC market.

"That’s why we encourage master trusts, which account for 95 per cent of active memberships in the DC trust-based saving world, and large single-employer trusts, to adopt the framework early and help us learn what works and what doesn’t," she continued.

"This will help also to inform the legislative regime that will follow in the Pension Schemes Bill."

However, Blackett clarified that the regulator also wants to hear from trust-based schemes of all sizes, with a view to ensuring the final framework can be applied effectively to all trust-based schemes.

She stated: "Pension scheme trustees are experts on their schemes and their members.

"We’d urge those responding to the consultation to tell us what they need to make the best decisions for their savers, bearing in mind that the framework needs to work across the whole DC landscape.

In particular, Blackett says that the regulators are keen to hear views on how best to measure quality of service.

“This area has been challenging because of the many factors involved; the nature of service and the value it provides will be different across different demographics," she said. "So, we really want to know what metrics clearly demonstrate better outcomes for savers."

Blackettalso pointed out that the FCA’s consultation does not include forward-looking metrics due to the complexities and gaming risks they present, confirming that the regulators are keen to understand how these could be avoided and to understand if trustees use forecasts of expected returns to guide their decision-making.

“We also urge trustees to consider the areas where we will need to update metrics on an ongoing basis to keep up with shifts in the economy, technological evolution and changing saver needs," she added.

“This consultation is a real opportunity for industry to have their say on a framework that could have as big an impact on pensions as auto enrolment did. FCA and TPR will be engaging with both contract-based and trust-based schemes during the consultation.

"We encourage all DC trustees to make sure they take this opportunity to help shape a future pensions industry which has value for savers at its heart.”

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