Pension rules overhaul slammed as 'disappointing' as retirement savings value at risk

The UK's financial services regulator expanded the rating framework for pension schemes, which will now introduce a fourth category to better distinguish top performers.

This new system features a dark green rating reserved for the strongest schemes, followed by light green for those still delivering adequate value. Amber and red ratings complete the framework, signalling varying degrees of concern about scheme performance.

According to the FCA, the Department for Work and Pensions (DWP), and The Pensions Regulator (TPR), the changes are designed to provide pension members with clearer insight into both the costs they face and the returns their savings generate.

Helen Morrissey, the head of Retirement Analysis at Hargreaves Lansdown, expressed support for the regulatory overhaul, but cited "disappointing" areas in the looming changes.

"The reforms outlined in this paper will give members a better understanding of whether they are getting true value for money from their scheme and put them on course for a better retirement outcome," she said.

Ms Morrissey explained that providers receiving an amber rating would face scrutiny from both members and employers regarding their shortcomings, with expectations to demonstrate improvement plans.

Those assigned a red rating would see their members moved to schemes offering superior value. "It's a clear system by which members can hold providers to account," she added.

Ms Morrisey added: "However, costs and charges are only one element of determining value, and we are disappointed to see that the inclusion of wider engagement metrics beyond completion of expression of wish forms has been pushed out to the medium term alongside completion of member satisfaction surveys.

"These wider metrics are hugely important in measuring engagement beyond basic hygiene factors and are vital in determining how employees engage with and value their scheme.

"These include additional contributions, investments outside the default, and the number of login-ins for years. Through measuring these factors, we can work with employers to boost engagement where it is needed."

Sarah Pritchard, the FCA's deputy chief executive, said: "Good value isn’t just about low costs – it’s about strong performance, good service, and transparency. We want to see a focus on value. By working with Government and The Pensions Regulator, we will help secure better returns for pension savers.'

Nausicaa Delfas, TPR's chief executvie, added: "Millions of people rely on pension income to support them through later life. We have to make sure they get value for their money. T

"This framework will empower decision-makers to either improve their scheme or consolidate out of the market. We want to hear the views of trustees to make sure we get this right and help transform pension saving for millions."

Labour Pension Minister Torsten Bell broke down how the reforms will benefit the pension returns for retirement savers for years to come,.

Mr Bell explained: "'It is simply too difficult for people to know whether their pension savings are working for them. That's not right when we're talking about something as important as people's security in retirement.

"These proposals change that. Pension schemes' performance will be public with a simple rating system. In future, savers will know if they are getting a good return or not. This is about being straight with people and making sure people’s savings work as hard as they did to earn them."

On top of the rating system, the upcoming reforms also include stronger governance with clear expectations for trustees and providers, and clear steps to take when schemes are not giving members good value, including closing them to new business and moving members to better-performing schemes.

These joint proposals are open for comment until March 8 2025, with rules only being confirmed once responses have been considered and are subject to the Pension Schemes Bill receiving Royal Assent.