Industry experts have given a mixed welcome to the latest FCA Consultation Paper CP26/1 on the Value for Money framework which will see DC pension scheme members given value for money performance information on a regular basis.

Most experts have said the new consultation plans, which will include rating schemes on a four colour-coded basis in terms of their value, were positive but more work was needed to avoid harming some pension schemes.

Some experts have highlighted areas where “further careful consideration” is needed.

The FCA plans, backed by other pensions regulators, could see poorly performing pension schemes forced to close with members moved to other schemes. Schemes will also be given a four-point performance rating using red, amber, green and light green (light green just added).

Steven Cameron, pensions director at Aegon UK, said: “We welcome many of the changes the FCA is proposing to  the Value for Money framework. A lot has changed since the previous consultation back in August 2024, which means the scope and overall purpose of the VFM framework across both contract and trust-based workplace pensions needs to be reconsidered.

“We had particular concerns over the Red, Amber, Green ratings proposed previously and, in particular, the commercial cliff edge between Green and Amber rated arrangements, with the latter having to close to new employers. We welcome the move to a 4 rating system with Light and Dark Green, but the implications will need thought through in detail to ensure the new approach avoids unintended consequences.

“One of the most significant changes from previous proposals is the creation of a centralised data base which will compile commercial market averages to aid ratings. While this replaces the self-selection risk of governing bodies selecting their own three comparator arrangements, the stakes for making sure the averages are fair and meaningful are high. 

“We’re also pleased the FCA has removed some of the data metrics within the framework. The previous proposals included a huge number of data points, not all of them particularly relevant to Value for Money, and risked governance bodies losing sight of the wood for the trees. We support removing 15 year investment past performance. It also makes sense to defer most customer service metrics around engagement for now.

“However, there’s an additional inclusion of forward-looking investment performance data, with trustees and schemes being given flexibility around assumptions and approach. This creates a real risk of subjectivity and lack of comparability.”

He said that possibly the most significant development since the previous VFM consultation has been the Pension Schemes Bill’s ‘megafund’ requirement under which all multi-employer schemes and providers will need to have a Main Scale Default Arrangement of at least £25bn by 2030."

He believes that in the multi-employer space, this will lead to “widespread consolidation.” He also believes the timetable for the changes is “very challenging.”

David Brooks, head of policy at leading independent financial consultancy Broadstone, said work was still needed. He said: “We welcome the FCA’s updated consultation on Value for Money, particularly its focus on streamlining service quality metrics.”

“However, a real challenge will be agreeing what ‘good service’ actually looks like and how it should be measured in a way that’s fair, comparable and transparent. The FCA’s consultation makes clear that service quality must sit alongside performance and cost, but it stops short of defining a final metric set, leaving the industry to help shape it. A credible approach requires objective, measurable indicators rather than vague notions of ‘good administration’.

“Ultimately, any assessment of Value for Money must recognise the unique strengths different schemes bring to their members. We look forward to seeing the outcome of this consultation and support the continued effort to create a clear, consistent framework for assessing DC schemes.”

Michael Aherne, partner in global law firm Herbert Smith Freehills Kramer's pensions practice, said: "The FCA has clearly listened. These new proposals mark a significant step forward from the 2024 framework that faced strong pushback."

"By factoring in expected future returns, the FCA is promoting a truly long-term, holistic approach to investment. Perhaps it is the key that will unlock the door towards productive allocations such as private markets."

"At the same time, requiring schemes to assess against the entire commercial market, rather than a handful of selected peers, brings consistency and objectivity to the process. This, together with the move to a nuanced RAGG system is welcome. It allows schemes to show progress without being unfairly penalised - a big improvement on the blunt amber rating."

"In short, this framework isn’t just about measurement; it’s about driving consolidation, productive investment, and better retirement outcomes. The FCA said they wanted to get it right, and these proposals suggest they’re on track."

The Pensions Management Institute has welcomed the “refinements” to the Value for Money framework but is warning against complacency. 

Helen Forrest Hall, chief strategy officer at the PMI, said: "The new framework is a positive step towards better saver outcomes. Streamlined service quality indicators, more focused cost and performance measures and a broader comparator group show regulators have listened. The four-point rating system is a win for fairness and competition.

“But ambition must match reality: schemes face heavy pressures, and added burdens must stay proportionate. Clear communication will be critical to avoid confusing members. We will work with Government and regulators to ensure the rules are practical, consistent across schemes, and deliver long-term value for savers.”