Pensions minister Torsten Bell said the value for money framework was intended to make sure the industry focused more on returns for savers rather than just costs.
Speaking to trade media today (June 5) after the launch of the pensions schemes bill, Torsten told FT Adviser employers should not be “narrowly focused on one particular metric”, such as costs, when selecting a pension scheme.
Instead, what mattered was focusing on the “thing that does matter to savers, which is their pots at the end”.
He said: “It’s about net returns that matter for savers. So it’s driving that culture change that needs to happen, not just at the provider level, but trustees should be spending more time focusing on that as their key objective.”
He said the government was encouraging employers to also consider these different metrics, as they are often the ones choosing schemes for savers.
While parts of the bill will be relevant to individual savers, such as the issue of small pots, the value for money framework work was providing “important protections” to make sure everybody gets a good outcome, Bell explained.
“[Individuals] will use [the value for money framework] in different ways, but the pressure is not on individuals to be like, ‘Right, I’m going to go and compare hundreds of different schemes’. That’s not how the system works today.”
The government presented the pension schemes bill as it looks to introduce reforms to combine smaller pots, create bigger pension funds and introduce a value for money framework.
Bell said he expects the bill to receive Royal Assent in the first half of 2026.
Timeline
The government has set out a road map for the timing of the various reforms.
It confirmed small pot consolidation will not start until after the scheme consolidation driven by the Pensions Investment Review has nearly finished.
It also sets out value for money regulations will start to be processed in 2026-27.
Bell admitted the reform agenda needed to pick up.
He said: “The big picture is the last decade saw progress in implementing some of the measures that were put in place in the middle of the previous decade by the pensions commission.
“But that has created savings pots. It hasn’t given us the pension landscape that we need to take us forward for the next few decades.
“And so I’m very focused, as you can see, in terms of the pace of reform that’s coming through, that we will deliver that over the course of this Parliament.”
In the road map, Bell said: “In complex ecosystems — and pensions is definitely one — a shared understanding of the destination is crucial to industry, individuals and government taking the right decisions to all pull in the same direction. That is why we owe it to everyone to spell out how the myriad changes now under way fit together.
“This is what this road map aims to provide. In so doing it spells out the phasing of reforms we are engaged in.
“Some will be impatient for swifter progress, others concerned by how many things are to be done in quick succession. In thinking about this timeline, I have balanced the need for change with the reality that all institutions face capacity constraints in implementing change. And yes, that includes government.”
Pensions review
Bell also announced he would launch the second phase of the pensions review “shortly”, which is due to focus on the adequacy of retirement incomes.
Although he has not given any set date on what this could be.
He said: “It is 20 years since the Turner Commission, and it is time to build on that legacy by completing the job.
“I am alive to the challenges of doing so, but we should take confidence from the policy challenges we have overcome before; the challenges of the 1990s, where the threat of employer insolvencies risked leaving employees with empty promises, and of the 2000s, where millions were saving nothing for their retirement at all.
“Governments are like people in one important way: they can easily put off thinking about pensions until it is too late.
“We must not do that, and we are not doing that. I know the task is to finish the job — to celebrate that people are saving something, but recognise our job must go beyond that: to build a pension system.”
Back in December, it was reported that chancellor Rachel Reeves hit the pause button on phase two of the pensions review due to fears it may force employers to increase their contributions to staff retirement pots.
Reeves was said to look to avoid putting any further “pressure” on business after increasing employer national insurance contributions, in a bid to plug the £22bn black hole in the public purse.
amy.austin@ft.com
