For ambitious regulation to succeed, objective metrics are needed to sharpen accountability.
Every DC fiduciary wants better value for money (VFM) for their members. To that end, we applaud UK regulators’ ambition to create a framework that improves transparency, strengthens accountability and focuses on the outcomes delivered to savers. But an overly subjective regulatory regime could weaken accountability and results. We propose 12 concrete steps to help strengthen the proposed VFM framework and create better outcomes for DC members.
- Keep realized net investment performance central to VFM assessments.
VFM should start with the net return members actually receive, after all charges. It’s the most objective, comparable evidence of value delivered. Keeping realized outcomes central reduces scope to excuse weak results and focuses attention on improving retirement outcomes.
- Ensure VFM strengthens accountability—not just compliance.
VFM should change behaviour, not just expand reporting. It should create clear responsibility for investment decisions, costs and governance, so trustees and providers are judged on outcomes, not process. Accountability is what drives improvement.
- Prevent subjective measures from diluting outcomes or excusing underperformance.
Qualitative factors can provide context, but they must not outweigh outcomes. If narratives and “scores” can dilute the evidential weight of net returns, the regime becomes easier to game and harder to enforce. Actual member outcomes should remain the anchor.
- Use single-vehicle default structures where possible.
The choice of structure matters. A single default vehicle (such as a target date fund) gives a continuous read on performance, costs and risk for the strategy members are invested in. That improves transparency, monitoring and governance decisions.
- Avoid overly comparator-driven approaches.
Peer comparisons can inform, but if VFM becomes “how close are you to the average?” it will encourage herding. Providers would then minimize deviation rather than optimize long-term outcomes.
- Encourage schemes to adopt differentiated strategies that align with membership characteristics.
Default strategies should reflect the pension plan membership characteristics: age profile, pay patterns, contributions and likely retirement choices. Aligning strategy to these characteristics clarifies objectives and makes accountability meaningful, raising the chances of better outcomes for members.
- Anchor comparisons to simple, investable reference points.
Comparisons work best when the objective is clear. Simple, investable reference points (such as low-cost market index comparators) show the opportunity cost of complexity and help separate skill from style. That makes findings clearer and more actionable.
- Prefer performance presentations that reflect actual compounded member experience.
Members experience compounding, not “average” years. So performance data should reflect the actual member journey and sequence of returns. This is closer to economic reality and makes VFM judgements more reliable. While arithmetic averages may be convenient, they can mislead if treated as member experience. If used, label them as an administrative approximation and add plain-language guard-rails.
- Apply consistent “net” cost treatment: include all fees and charges so net means net.
Cost comparisons only work if “net” means the same thing everywhere. Performance fees, private market costs and other non-headline charges reduce member pots and must be treated consistently; otherwise VFM rewards disclosure differences, not value.
- Constrain forward-looking projections so they provide context, not determinants of value.
Projections help explain strategy and risk, but they are assumption-driven and easy to optimize on paper. They should provide context, not determine value judgements—especially through composite metrics that blend actual and forecast data and that create false precision.
- Insist on meaningful challenge from third-party experts.
Where judgement matters, a self-assessment approach will likely drift towards narrative. Instead, independent experts should test assumptions, interrogate the selected data and strengthen confidence that conclusions follow. Regulators should guard against conflicted or mere box-ticking advice, particularly where assumptions are not published.
- Recognize that members have different journeys.
As members approach retirement their investment objectives become more varied and nuanced. For example, income drawdown strategies are long-term and must manage absolute risk, whereas an annuity-purchase strategy is typically shorter-term and sees risk as relative to changes in annuity pricing. So regulating purely on the basis of pot-size maximization won’t work for everyone.
In summary, VFM assessments should be outcomes-led, comparable and hard to game: anchored in realized net performance, consistent ‘net’ cost treatment and clear membership-aligned objectives. We believe they should use qualitative factors and projections to explain, not to excuse; adopt simple reference points to sharpen accountability; and require genuine independent challenge. Managed this way, VFM can avoid becoming a compliance headache—and can transform regulatory ambition into better member outcomes.
