The FCA proposes a forward looking approach to pension management

Significant changes to how workplace pensions – particularly defined contribution (DC) schemes are managed has been announced by the Financial Conduct Authority (FCA). The consultation is part of the FCA’s ongoing efforts to improve retirement outcome, as well as ensure better value for money. If approved, the changes will mean substantial changes for trustees, independent governance committees (IGCs), and advisers.

Key Proposals

Forward-looking metrics

One of the most notable shifts is the FCA’s proposal to include forward-looking investment performance metrics alongside traditional backward-looking measures. Previously, Value for Money (VFM) assessments focused on past returns and costs. Instead, plans will now have to disclose projected net investment returns over the next decade. Arguably this will aid investors with aligning their performance assessments with longer-term interests, however there is concern there will be optimistic or misleading projections in order to attract new business. 

A Four-Point rating system

One of the biggest changes from the 2024 consultation is the creation of a four-point “traffic light” rating system, including red, amber, light green and dark green. The intention being that VFM assessments will be easily comparable across multiple schemes. So what do the colours mean?

Dark green	Strong performance
Light green	Good value
Amber	Improvement needed
Red	Poor Value

The inclusion of a second green option will no doubt be welcomed by the industry, allowing greater scope for positive findings, as opposed to the previously proposed stark contrast between strong performance and improvement needed.

Simplified data requirements

Under the new approach, cost and performance metrics will be streamlined, with a centralised database of commercial comparators being collated to support benchmarking. Previously, pension arrangements would need to select a small set of comparators individually, which opened them up to criticism. The change presents both opportunities and challenges. Pension professionals will no longer need to justify their choice of comparators, reducing scope for disputes about selection bias. However, enhanced transparency could lead to greater scrutiny of scheme performance, increasing the likelihood of claims being pursued.

Comment

The proposed reforms are intended to empower employers and savers by enhancing transparency and comparability. However, for pension professionals, the practical implications could be substantial. The introduction of forward-looking metrics and publicly published ratings increases the potential for legal disputes. For example:

• Trustees and IGCs will need to justify assumptions and demonstrate diligent governance processes
• Advisers may find themselves defending advice given in contexts where metrics evolve rapidly and benchmarks shift year to year
• Providers should prepare for increased challenges from members, sponsors or prospective clients around interpretation of ratings and forecasts

While streamlined in some respects, the VFM Framework will still demand significant data collection, analysis, and documentation. Professionals will need to articulate, with supporting evidence, how decisions are made and why certain methodologies or assumptions were used.

The proposed amendments represent an attempt to standardise and enhance value for money assessments in the pension industry. The consultation remains open until 8 March 2026 and we will provide an update once the FCA announces the changes required.