Philip Smith, DC Director of TPT Retirement Solutions
Since the introduction of auto-enrolment in 2012, we've witnessed a revolution in the uptake of defined contribution (DC) pensions across the UK. Millions more savers are now participating in workplace pensions than ever before. It's arguably one of the most successful pieces of policy in recent decades, and it has transformed the pensions landscape in terms of access and coverage.
However, despite this progress in participation, the actual product behind these pensions – the DC scheme itself – has changed remarkably little in over a decade. Sure, we've seen some technological enhancements: the rise of mobile apps, better interfaces, and more user-friendly communication have made the experience more digestible for members. But beneath that layer of tech-enabled polish, the fundamental design and structure of the product has remained largely static.
This is particularly striking given the scale and importance of the asset pools involved. The root of the problem lies largely in allowing price to become the dominant force in assessing and selecting pension provision.
The Tyranny of Price
There has long been a focus on supplier charges and costs in the UK, combatting what you could call the "Rip-off Britain" phenomenon. We've seen it dominate discourse in sectors from energy to telecoms and, inevitably, it's crept into pensions too. It's unsurprising that when auto-enrolment was rolled out, the focus quickly shifted to cost – a perfectly understandable concern at the time. After all, default funds were being created en masse for an entire population of new savers, many of whom had little or no investment experience.
This environment birthed the 0.75% charge cap. While well-intentioned and aimed at protecting consumers, this cap cemented a culture in which price became the primary (and often only) lens through which pension schemes were evaluated.
From Boardroom to Back Office: The Shift from DB to DC
Another key contributor to this price-first mindset has been the structural shift from Defined Benefit (DB) to Defined Contribution (DC) pensions. Historically, DB scheme management and investment decisions have typically been overseen by CFOs, and corporate finance teams — placing pensions high on the boardroom agenda and aligning decisions closely with managing risk and outcomes.
But with the shift to DC, that dynamic changed. Management of contribution expense rather than outcome became the key focus, and with the transfer of risk to the employee, governance became more operational and benefit-focused.
The result? Pension strategy has fallen down the corporate agenda in many organisations. The focus has shifted toward ease of administration, minimising charges, and satisfying minimum legal requirements, rather than exploring ways to maximise member outcomes through increased contributions, better governance, or investment innovation.
Consequently, providers have found themselves in a race to the bottom on fees. Procurement teams, consultants, and employers started prioritising cost when selecting a provider, even in Request for Proposal (RFP) processes that ostensibly claimed to focus on broader value. In truth, unless price is comfortably within range, few schemes make it to the final shortlist, no matter how innovative or outcome-focused they might be.
The Consequences of Underpricing
The effect of this long-term pressure on fees is now coming home to roost. With margins being continually squeezed, providers have found it difficult to deliver diverse, future-proofed investment strategies – especially those involving private markets or other non-traditional asset classes.
The government has expressed clear ambitions to get DC schemes investing more in private markets, infrastructure, and growth assets. But with headline fees needing to remain ultra-low to remain commercially viable, incorporating these strategies into mainstream defaults has proved challenging.
Worse still, overly simplistic price comparisons often fail to consider the broader investment value chain: risk management, governance, stewardship, and innovation in retirement income solutions. These cost money, and the result is that members are being short-changed on long-term outcomes in the name of short-term fee control.
VFM: A Turning Point?
The good news is that the UK government appears to recognise this dynamic. The joint consultation by the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR), outlined in CP24/16, marks a pivotal moment. The proposed Value for Money (VFM) framework will hopefully move us away from this narrow focus on cost toward a more comprehensive view of how DC schemes should deliver value for their members.
To really maximise the opportunity at hand, we believe that several practical measures could be introduced to enhance the framework being put forward and ensure it better reflects the nuances of the market:
TPT's Recommendations to Enhance VFM
- Introduce Granularity in the Green Rating
Within the proposed traffic light rating system designed to assess the value delivered by each scheme across key metrics, we believe there should be intermediate steps within the Green category—such as A+, A, and A—– to recognise schemes that are genuinely delivering outstanding value. This would ensure that the most innovative and member-focused schemes are not lumped in with simply adequate ones. Alternatively, we would support a scorecard-based approach, which could allow for more detailed comparisons across multiple dimensions. - Measure Customer Satisfaction
It's not enough to know how a scheme performs technically – we also need to understand how it's perceived by its members. That's why we propose the adoption of the Customer Satisfaction Index (CSI), a recognised UK standard for financial services, as part of the VFM framework. While Net Promoter Score (NPS) is widely used, it primarily measures loyalty and likelihood to recommend – rather than satisfaction with service and communication. CSI would offer a more relevant and comprehensive insight. - Senior Nominated Buyer Within Employers
We recommend that employers appoint a senior nominated buyer to oversee their pension scheme's performance, engagement efforts, and alignment with VFM objectives. This individual could act as a champion for scheme quality and ensure continuous improvement. While we acknowledge this may not be practical for small employers, for larger organisations, this governance step could significantly raise standards and accountability. - Regulation of the EBC Market
Finally, we believe there's a case for regulation of the Employee Benefit Consultant (EBC) market. EBCs play a key role in shaping employer decisions and guiding scheme selection, yet they operate without regulatory oversight. Introducing minimum standards or conduct expectations could improve consistency and ensure that advice supports long-term value – not just short-term savings.
The market must adapt too
The success of the VFM framework will not rest solely on regulation. The wider market must adapt. Right now, RFP processes are still rooted in a lowest-cost-wins mentality. Until that changes, providers have little commercial incentive to innovate or stretch their investment capabilities.
We also need a shift in mindset. Value isn't just an academic concept – it's about the real, lived experience of savers. Are they engaged? Are their pots growing in a way that gives them financial security in retirement? These questions matter far more than whether the annual management charge is 0.3% or 0.4%.
Conclusion: Toward a Better DC Future
We're at a crucial inflection point. The last decade was about coverage – getting people into pensions. The next must be about outcomes – ensuring those pensions deliver genuine value.
The proposed VFM framework has the potential to change the DC market for the better. But it will only succeed if the entire ecosystem – providers, consultants, employers, and regulators – evolves together.
Pensions are not a commodity. They are long-term vehicles of trust. If we keep treating them like a tin of beans, we'll continue to get tin-of-beans outcomes. But if we refocus on value – real, measurable, member-centric value – we can ensure that auto-enrolment delivers not just participation, but prosperity.
