FCA proposes new ratings system for workplace pension schemes

Pension savers could be set for new protections that will ensure they get better value for money from their workplace schemes.

Official figures show more than 16 million workers have defined contribution (DC) pensions through their job but performance can vary.

The performance of your workplace pension can impact how much you can access for your retirement.

That is pretty important with inflation remaining high and the typical cost of a comfortable retirement hitting £43,900 last year.

The Financial Conduct Authority (FCA), the Department for Work and Pensions (DWP) and The Pensions Regulator (TPR) have published joint proposals aimed at encouraging workplace pension schemes to improve their performance.

Under the proposed changes, pension schemes will need to publish clear data on their performance, costs and quality of service based on a ratings system giving each a Value for Money score.

If a pension is deemed to offer poor value, firms and trustees must then fix it by moving staff to better schemes or by making improvements.

Sarah Pritchard, FCA 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.”

Here is how the changes could boost your pension.

Value for money checks

The FCA’s consultation paper highlights that value for money makes a real difference for pension savers.

Over five years, a £10,000 pot could grow to £10,400 in a poor scheme or £15,100 in a high-performing one – 46% more, according to the City watchdog.

The FCA wants to address this by getting governance committees and trustees to conduct value for money assessments of their schemes.

Each will be given a colour rating, with dark green for strong performance, light green for good value, amber for improvement, and red for poor value.

Assessments will be made based on costs, investment performance and service quality.

The idea is that people running the schemes can compare them more easily and switch or try to alter performance if necessary.

Savers will also ultimately know if they are getting a good return or not and could put pressure on their employer to make changes.

Vahey, head of public policy at AJ Bell, said: “Most workers don’t get to pick which pension scheme their employer uses, but having clear information about how the scheme is doing means you can have better conversations with your employer to make sure it’s a good choice.

“This information is also handy if you leave your job, as it can help you decide whether to keep your pension where it is or move it to a scheme that’s performing better.”

Pension performance

The ratings will consider past performance and a future projection will also need to be provided.

The FCA has suggested that firms and trustees should report the expected net investment returns over the next 10 years, include an average standard deviated return.

Vahey warned that this approach comes with significant challenges.

She said: “Although it’s easy to see why the government wants to encourage workplace pension investment in private markets, measuring performance that has not yet happened opens the possibility that some schemes will ‘game the system’ by including overly optimistic returns that in practice may never materialise.”

The regulator also proposed that a third party is used to obtain and consider advice on the assumptions.

Transparency

The FCA wants savers to be able to see how their pension is invested across different assets and the costs.

The amount you pay for your pension can have an impact on returns.

Under the proposed changes, the total costs and charges over one year, three years and five years where available will need to be provided.

Service quality

The FCA also wants to ensure that pension savers get good customer service.

This is important if you want information on accessing your pension for retirement or to change contributions.

The regulator said it will consult on how pension savers are supported to make plans and decisions for their retirement and how easy it is to amend and engage with their pension provider.

The consultation on the proposed changes ends on 8 March 2026 and will be subject to the Pension Schemes Bill receiving Royal Assent.

It coincides with other plans to help people find out about their pension plans more easily such as the introduction of Pension Dashboards.

Rob Mansfield, independent financial adviser for Rootes Wealth Management, said pension performance is hard to decipher.

He said: “For most people, what they’re interested in is, is it growing and if so how much by? That should be easy by looking at the fund factsheet but the choice of benchmark can flatter, it needs to be comparable.

“This traffic light system is interesting but it’ll be lost on most people. For example, If your ‘average annualised standard deviation of returns’ comes out as red, what action should you take? If you’re in drawdown that could be a bad sign but if you’re in the early stages of a career and looking for growth, it may be irrelevant.”