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Just how should we assess value for money (VFM)?

17 April, 2024
clock 7 MIN READ

In his Autumn Statement late last year, Chancellor Jeremy Hunt revealed that in spring 2024, the Financial Conduct Authority (FCA) would consult on its new value for money (VFM) framework. How best to define ‘value’ will naturally form part of the discussion. So, too, will the framework’s additional reporting requirements. 

With the latter, it’s easy to be cynical. If schemes are being asked for more detailed disclosures around investment performance, costs and charges, then who exactly benefits from this? It’s likely such disclosures will only be read by a handful of people in addition to the Regulator—for example, trustees, independent governance committees (IGCs), and other industry professionals. 

But perhaps this is not such a bad thing. The latest iteration of the VFM framework should, we hope, prove enlightening, even if only to a select group. After all, VFM has the power to change which pension providers are recommended by consultants, based on how much value said providers actually deliver to members. It’s hard to argue that this is anything other than commendable.   

I’m reminded, here, of a panel discussion I participated in some weeks back. The first question put to us was this: ‘With the master trust market entirely made up of master trusts who rely on index implementation, what is the next trend to differentiate investment outcomes?’ Imagine the hush when I broke to the audience that as well as considering ourselves an investment-led master trust, our default is actively managed. Not only that, but our investment performance consistently outranks many of our industry peers.1 ‘Ah, but at what cost?’ was the inevitable response. 

When it comes to defining ‘value’, this gets to the heart of the debate. So often, we see investment performance and active management pitted against fees. True, active management typically incurs higher fees than passive management, but do clients always feel they’re being overcharged for active management? Not necessarily, particularly if risk-adjusted performance is good, and they’re with a provider who’s proactively seeking to reduce their charges without being prompted. 


Does ‘low cost’ always mean ‘good value’? 

An example is perhaps illustrative at this point. Corporate Adviser produce a quarterly study showing how different providers compare to one another on a risk/return basis.2 The study also benchmarks said providers against the Corporate Adviser Pensions Average (CAPA), i.e. the average over the period for all schemes, subject to data availability.3   

For a younger saver with 30 years to state retirement age, the SEI Master Trust outperformed the CAPA index by 2.78% for the five-year period to 31 December 2023. If we assume our saver had a retirement pot of £12,300,4 then this difference is significant. Over the five-year period, our saver would wind up £2,509 better off investing with SEI, than with the average UK provider:


Member profile:

  • 30 years to state retirement
  • £12,300 pot


Five-year gross performance

SEI Master Trust 

Five-year gross performance 

Difference (%)2.78%
Difference (£)£2,509

Source: SEI, for the five-year period to 31 December 2023, gross of fees, using data from Corporate Advisor.2 Gross returns are calculated by adjusting the monthly net return to exclude administration, trust and custody fees. Fees would reduce the returns shown We have chosen an example member 30 years from retirement, as this is when capital appreciation is most important. We have chosen a pot of £12,300, for illustrative purposes, as this was given as the average DC pot size by the Pensions Policy Institute (PPI).4 Past performance does not predict future returns.

Now consider what this says about value. Bottom line: the table above shows our investment performance was above average. There may well be providers who charge less than us in fees, but doesn’t that somewhat miss the point? The 2.78% difference between our master trust’s performance and the UK average is worth more than a basis point or two in fees. Hypothetically speaking, we could have charged members significantly more to achieve the UK average in the example above. And not just a basis point or two more, but 278 basis points (the fee equivalent of 2.78%)—far beyond the point at which the charge cap would kick in. Put another way, if providers with average or below average returns wanted to match us, they’d need to pay into member pots themselves.

So you see, ‘low cost’ doesn’t always equate to ‘good value’. And if, after contributions, investment performance is the greatest driver of retirement outcomes for members, then surely that’s where we should be focusing our attention. 

To close, we’ll leave you to consider the following:

If a member has £10,000 invested and is charged a fee of 25 basis points, and another has the same amount invested, but is charged 24 basis points—what is the difference in deduction over a single year?*

Bring on the consultation!   

Interested in finding out more?

Contact a member of the team today.

Steve Charlton

DC and Solutions Managing Director, Institutional Group EMEA and Asia

*The answer is just £1.

1 ‘Standing the test of time: Three the SEI Master Trust has what it takes in an increasingly competitive market’, SEI, November 2023.

2 ‘Risk/Return – younger saver, 30 years from retirement, 1-year, 3-year, 5-year annualised’, CapaData, Q4 2023.

3 The Corporate Adviser Pensions Average (CAPA) is the average (mean) return delivered by defaults known to us, over set time frames. It covers the performance of the strategies of more than 95 per cent of the entire master trust market, as well as those of key life insurers active in the provision of workplace pensions.

4 £12,300 is given as the average DC pot size by the Pensions Policy Institute (PPI). ‘The DC Future Book’, Pensions Policy Institute (PPI), 2023. 

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This is a Marketing Communication. This webpage has been created in relation to the SEI Master Trust, an occupational pension scheme which is authorised by the Pensions Regulator. The trustee of the SEI Master Trust is SEI Trustees Limited. SEI Trustees Limited has appointed SEI Investments (Europe) Ltd (“SIEL”) as investment adviser to the SEI Master Trust and pursuant to its investment advisory agreement. This information is issued and approved by SEI Investments (Europe) Ltd (“SIEL”) 1st Floor, Alphabeta, 14-18 Finsbury Square, London EC2A 1BR. This advert and its contents are directed at persons who have been categorised by SIEL as a Professional Client and is not for further distribution. SIEL is authorised and regulated by the Financial Conduct Authority. While considerable care has been taken to ensure the information contained within this webpage is accurate and up-to-date and complies with relevant legislation and regulations, no warranty is given and no representation is made as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information. The information in this webpage is for general information purposes only and does not constitute investment advice. You should read all the investment information and details on the funds before making investment choices. Please refer to our latest Prospectus (which includes information in relation to the use of derivatives and the risks associated with the use of derivative instruments), Key Investor Information Document, PRIIPs KID, Summary of UCITS Shareholder rights (which includes a summary of the rights that shareholders of our funds have) and the latest Annual or Semi-Annual Reports for more information on our funds, which can be located at Fund Documents ( And you should read the terms and conditions contained in the Prospectus (including the risk factors) before making any investment decision. If you are in any doubt about whether or how to invest, you should seek independent advice before making any decisions. The UCITS may be de-registered for sale in an EEA jurisdiction in accordance with the provisions of the UCITS Directive. Past Performance does not predict future returns. Investment in the range of the SEI Master Trust’s funds are intended as a long-term investment. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested. This document and its contents are for Institutional Investors only and not for further distribution.