Pension funds will be placed into a "traffic light" style ranking system under new Department for Work and Pensions (DWP) plans which will reportedly offer better returns for savers.
The Government and regulators are confident the new system could improve the transparency of retirement funds and reduce the number of poor-value workplace schemes.
Schemes will be rated either red, amber or green depending on how well they are performing for savers.
Under this proposal, competition among funds will hopefully improve standards with regulators hoping to see less of a gap between the worse-performing schemes.
The DWP, the Financial Conduct Authority (FCA), and the Pensions Regulator (TPR) seek to put the framework in place for workplace-defined contribution (DC) schemes.
This plan would be utilised by pension providers and those making decisions on behalf of savers.
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The DWP proposal will rank pensions either green, amber or red
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Retirement schemes will be compared on public metrics that prove value, investment performance, and service quality.
With this latest pension overhaul, badly performing schemes will need to improve or protect customers by transferring them to better schemes.
The idea is that this will eventually lead to "better value" pensions down the line without savers having to take action.
These proposals also assist the FCA's plans to improve growth and competitiveness.
Emma Reynolds, the Pensions Minister, shared that the Government hopes these reforms will make "pensions fit for the future" and encouraged stakeholders to get involved in the consultation.
This move has been welcomed by the Pensions Regulator Nausicaa Delfas as a "great opportunity for the pensions industry".
Stakeholders are encouraged to get in contact with FCA by October 17 on the framework for pension schemes it regulates.
This framework will exist within the existing consumer duty on financial firms to ensure customers are getting the best possible service.
Laura Myers, the head of DC pensions at consultancy LCP (Lane Clark & Peacock), described the latest pension proposals from the Government as "radical" which will "shake up the market".
She said: "But it is vital that the Government’s drive towards bigger and bigger pension schemes does not ignore the value which is provided to members by many high quality smaller and medium-sized schemes. The priority must always be the best outcomes for scheme members and not simply size for size’s sake."
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GETTYPatrick Heath-Lay, chief executive of People’s Partnership, provider of the People’s Pension, believes this latest reform package will "rightly move conversations" to create better outcomes for pension savers.
He explained: "We believe this framework should be expanded to include non-workplace pensions as soon as possible and be a feature of commercial dashboards at launch so that savers can easily compare pensions across the whole market."
Becky O’Connor, the director of public affairs at PensionBee, added: "It’s currently close to impossible for people to compare pension plans between providers and to know whether they are getting a good deal. There is arguably no other product or service people pay for that they know so little about.
"As this consultation highlights, there is more to value for money than cost. Better transparency, as well as education, could help pension savers work out if they are getting a good deal in the same way they do for other financial products. It should also mean that if they are not happy, they can move their pension more easily to one that represents better value."
