VFM framework needs to focus on member outcomes rather than ‘onerous’ asks that don’t measure the right things

LCP is urging the government to ensure that the proposed Value for Money Framework is proportionate and doesn’t lead to onerous costs that will end up being passed to members.

Further, in their response to the DWP’s consultation on the Value For Money Framework, which closed this week, LCP believes that the Framework should only focus on member borne costs and charges – the far more important element of any cost assessment. The inclusion of all costs and charges in the current proposal is unnecessary and misleading in order to get a true assessment of value. Including these costs and charges is likely to disincentivise employers from offering further support if it is not appropriately accounted for in the VFM framework. In LCP’s view, it will be virtually impossible to provide a full and comprehensive assessment of all costs, particularly for employers where they take governance of their scheme more seriously.  

Other points LCP raised in their consultation are: 

• There should be a greater focus on ESG considerations. Schemes should be required to confirm that they have demonstrated their commitment to and consideration of Environmental, Social, and Governance (ESG) risks and opportunities, as well as stewardship, as part of the assessment of a default strategy. Initially, this could take the form of a simple checkbox to confirm the Investment Governance Committees are satisfied that ESG considerations and stewardship have been taken into account in the design of ’s compliance that it has shaped each default strategy.
• The metrics and disclosures required are all backwards looking and do not focus on delivering future outcomes. Assessing forward-looking metrics is a fundamentally important addition to the Framework, and progress will be important in this area.

Laura Myers, Partner and Head of DC at LCP, commented: “It’s really important that employers and trustees can review and assess their schemes and the value that it is delivering on the correct basis. That means using member borne-costs and charges. That said, we are pleased to see that the central focus of the Value for Money Framework is on value that is delivered for members, rather than on costs.

“However, the Framework needs to be proportionate and capture the most important measures rather than what can be measured. We are concerned about the current scale of data being required to complete a review. Making sure ESG measures are also considered will mean that the Framework will have a focus beyond simply costs and charges.”