The Financial Conduct Authority’s (FCA) consultation process closed this week, as it continues to develop the proposed Value for Money (VfM) rulebook that the government hopes will strengthen and future-proof DC savings.

Pension providers and trade bodies have widely welcomed the proposed system, but several have flagged concerns over issues such as forward-looking performance metrics and the absence of collective defined contribution arrangements from the rulebook.

In its response, TPT Retirement Solutions argued that regulators needed to ensure that “forward-looking projections do not dilute accountability for poor performance”.

The FCA has previously asked for suggestions as to how forward-looking performance predictions could be incorporated into VfM assessments.

TPT said forward-looking metrics should not be given too much weight, with “realised member outcomes [remaining] the primary determinant of value”. This would ensure that providers do not attempt to mask poor performance by changing forward-looking assumptions.

Performance forecasts and ‘dry runs’

Ruari Grant, head of policy at TPT, said: “Schemes cannot be left to effectively mark their own homework, particularly when considering the current dispersion in member outcomes, and the commercial consequences that will flow from a VfM assessment.

“And, given the government’s wider consolidation agenda, under which VfM will become a key mechanism for determining what ‘good’ looks like, it is essential that assessments are driven by objective evidence of member value rather than subjective interpretation or narrative.”

Kate Smith, head of pensions at Aegon, agreed that past performance should carry more weight, and welcomed the FCA’s plan to “place more emphasis on actual customer outcomes and experience”.

The Society of Pension Professionals, in its response, recommended that the weighting of future projections in a scheme’s overall rating should be capped at 30%.

Smith said Aegon had “serious concerns” about how VfM was to be implemented, and urged the government to agree to a test phase “behind closed doors”.

The government has agreed to a delay to full implementation of the VfM system, with the first year only covering the largest schemes and master trusts and with no regulatory penalties being imposed.

“Just because there won’t be regulatory consequences, it doesn’t mean there won’t be commercial and reputational damage consequences,” Smith said. “All eyes will be on the published data and ratings, with the industry coming under immense scrutiny [and] information potentially taken out of context.

“This could be made worse if it turns out that there’s a lack of consistency in how trustees and providers have interpreted their VfM input data, which will influence the comparator data, and how default arrangements are assessed against this.”

The Association of Consulting Actuaries also raised this concern in its response, and called for a “dry run” led by the Pensions Regulator and Financial Conduct Authority for the first year.

“Data and assessment outcomes should remain unpublished during that first cycle, allowing issues with the metrics and comparisons to be identified before they influence the market,” the association said in a statement.

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