Government’s VFM strategy risks being undermined by ‘unintended consequences’

Commenting on the FCA’s new consultation on a VFM framework for workplace pension schemes, LCP Partner and Head of DC, Laura Myers said:

‘We have long advocated a change in emphasis from cost to overall value, so the new focus of the VFM framework on a wider range of measures of value is welcome. But there are a number of risks with the new approach. One is that high quality schemes run by individual employers, often with the benefit of an employer subsidy, may not score highly in the eyes of the government compared with giant master trusts, even if member outcomes could be as good if not better. It is important that the government does not focus on size for size’s sake. There is also a risk that schemes will be so afraid of even an ‘amber’ rating that they will be more risk-averse and afraid of being outliers. This could lead to ‘herding’ of investment strategies rather than rewarding schemes which are willing to innovate and invest for the long-term. In short, there is a risk of the law of unintended consequences coming into play with this consultation.”