Part 1 — NCC’s position 

Introduction 

The quality of asset allocation in the UK investment system is essential to its function. The current low quality of asset allocation within the UK investment system is central to the lack of investment capital both generating better outcomes for savers and improving the areas they will retire in. Too often, due to structural constraints, schemes are focused on cost-reduction and risk-stripping which herds 

capital into areas that are unproductive for the UK economy and fail to produce optimal returns over the long-term for members. 

NCC believes that VFM will act as a powerful driver of behaviour throughout the system, incentivising how asset allocation processes are developed and implemented. The risk of getting it wrong is high, and the damage that can be caused through getting it wrong has the potential to be substantial and long lasting. An example of this was the cost cap, which inadvertently and unexpectedly incentivised passive investment and exacerbated the flow of investment away from the UK. 

Implemented properly, VFM has the potential to generate significantly better outcomes for members and sponsors. Given long-term investment is inherently based upon judgements, NCC's preferred approach to implementing VFM is to adopt a low-risk approach, by implementing forward-looking measures that have the potential to be monitored and fine-tuned in the light of emerging behaviours. This way they can act as a lever for government and regulators and also be used to generate a system feedback loop, which can be used to cultivate the desired behaviours. This approach is particularly required in a rapidly changing, complex, interconnected environment. 

Implemented in this way, the Value for Money framework presents an opportunity to incentivise investment behaviours that match members' long-term investment horizons and prevent herding into low-cost, low-return assets. However, critical issues remain unaddressed within the existing proposals. One-dimensional service quality metrics focus on costs and past performance rather than governance quality. The absence of a central data architecture which measures three-dimensional effectivity for members and wider society could create regulatory herding into conservative pools and metrics that schemes can easily game.

The convergent danger then, is that VFM becomes a compliance checkbox rather than a genuine accountability mechanism as trustees report metrics with little predictive value, regulators lack data to detect problems, and members receive "VFM certificates" that mean nothing. 

VFM must be evaluated on returns and productive effect, not on cost alone. A framework that optimises for cost will entrench the very herding it is meant to fix. 

New Capital Consensus suggests interrogating capital allocation strategies across five critical dimensions: 

Right-Sized Risk Perspective: Do your risk assumptions match your members' actual long-term investment horizons, or are you confusing short-term volatility with genuine investment risk? 

Right-Sized Risk Metrics: Does your measurement system accommodate long-term investment, or does it force unnecessary short-term trading behaviour? 

Right-Sized Domestic Allocation: How much capital is invested in UK markets versus overseas, and has this been optimized for member outcomes and UK economic productivity, or is it passive adherence to global indices? 

Right-Sized Primary Allocation: What proportion of capital flows into primary investment (new issuance, infrastructure, innovation) versus secondary market trading of existing securities? Right-Sized Risk-Bearing Capital: How much is allocated to genuine risk-bearing capital that matches member time horizons versus defensive assets that provide false comfort? 

By embedding this ‘Effectivity Screen’ into VFM reporting, trustees would be required to transparently articulate and defend their allocation philosophy. This transforms VFM from a backward-looking cost exercise into a forward-looking governance discipline that reveals whether schemes are truly serving member interests and contributing to UK productivity. 

What we welcome 

• Recognition that current DC outcomes are structurally poor — asset-allocation herding, absence of sterling home bias, and a bias toward secondary-market exposure over primary UK issuance. 
• Cross-regulator ambition to bring FCA, TPR and DWP under a common VFM frame, rather than three uncoordinated regimes. 
• The underlying diagnostic work — the FCA asset-allocation survey and TPR’s parallel master-trust survey. This is the right raw material. 

Where the CP falls short 

Cost-first framing. Good practice, as currently defined, encourages conservatism and attempts to remove risk. That is the wrong yardstick. Costs matter only in relation to outcomes over the accumulation horizon. The Value for Money framework must draw focus onto returns for members, not just costs. A lowest-cost regime is not the same thing as a high-VFM regime.

Split regulation, split VFM. VFM is an exercise in splitting regulations across governing bodies. The FCA governs one half, DWP/TPR the other, and DWP’s side must additionally clear Parliament. The two halves are meant to be complementary. However, they are not required under the current framework to be identical, and Parliamentary processes could see them diverge further. The same concept of value for money should not mean two different things depending which regulator’s book a scheme sits in. NCC asks for a single, published, cross-regulator comparison showing where the two regimes align and where they diverge, updated as each half proceeds through its own process. 

Trust- versus contract-based silence. The CP’s working assumption appears to be that allocation practice is uniform across scheme types. It is not. Trust-based master trusts and contract-based providers herd differently, and the government’s own apparent lean toward an all-trust-based environment makes this split more consequential, not less. 

Mandate herding remains unaddressed. The single most useful figure the CP could have contained, but does not, is the breakdown of mandates benchmarked to MSCI Global versus UK. It is central to the broken link between UK retirement capital and UK primary issuance: on NCC’s existing modelling, well under 5%, often under 2%, of market activity funds new productive investment via net primary issuance. A VFM framework blind to benchmark choice cannot see, let alone fix, this risk substitution — replacing investment risk with herding risk on the mistaken belief that this is prudent. 

A narrow interpretation of “what good looks like.” VFM cannot fix what it does not define. NCC’s Effectivity Screen framework (outlined below) offers a route-neutral definition of good: the same £1 of retirement capital can behave very differently depending on the route it lands in. For example, in the DB world, insured buy-out, DB run-on, or authorised superfunds each have different allocation processes and a different capacity to support UK productive investment. VFM should be built to reflect this in the DC space, and to reward routes achieving effectivity for members, society and the UK economy, not merely on security or cost. 

NCC’s “what good looks like” model 

Definition. VFM is the ratio of productive-outcome delivery to member cost, measured over the full horizon of the promise, across the whole asset pool. Not lowest-cost. Not highest-yield taken in isolation. A route- and product-neutral measure of whether capital is doing useful work for the member and for the UK economy while it is invested. 

Metric spine. Symmetric, route-by-route reporting on: allocation to primary UK productive assets; retention of investment freedom (versus rules that force conservative, bond-tilted allocation as the default “safe” choice); disclosure of MSCI-benchmarked passive share; and buyout-adjusted returns net of transfer effects. The same tests applied the same way, whatever the vehicle. These can be administered through a series of disclosures along the following lines, which NCC calls our ‘Effectivity Screen’: 

• Risk Perspective: Do your risk assumptions match your members' actual long-term investment horizons, or are you confusing short-term volatility with genuine investment risk? 
• Risk Metrics: Does your measurement system accommodate long-term investment, or does it force unnecessary short-term trading behaviour?
• Domestic Allocation: How much capital is invested in UK markets versus overseas, and has this been optimized for member outcomes and UK economic productivity, or is it passive adherence to global indices? 
• Primary Allocation: What proportion of capital flows into primary investment (new issuance, infrastructure, innovation) versus secondary market trading of existing securities? 
• Risk-Bearing Capital: How much is allocated to genuine risk-bearing capital that matches member time horizons versus defensive assets that provide false comfort? 

System effect. A well-designed VFM regime will change and drive system behaviour. Three-dimensional “high-quality VFM” reallocates capital and rewards productive effect. A badly designed one simply legitimises current herding under a new label, “low-quality VFM” dressed up as prudence. Improving the VFM framework along the lines suggested above will transform it from a backward-looking cost exercise into a forward-looking governance discipline, thus revealing whether schemes are truly serving member interests and contributing to UK productivity. 

Part 2 — Response to the consultation questions 

NCC has focused on the questions that most directly engage its strategic case: returns and productive effect, transparent allocation, and orderly consolidation. The framework should make visible how retirement capital is invested and protect members from weak arrangements and reduce, not merely reproduce the market’s existing levels of herding. 

Question 8: Are you comfortable with ASD as a risk metric for all arrangements, or should some arrangements calculate their volatility metrics differently. Please specify under what circumstances and what modified calculations you would recommend. 

NCC supports annualised standard deviation (ASD) a measure of how widely investment returns vary around their average as a common floor. It is intelligible, repeatable and useful for showing one dimension of investment risk. However, we see it as a secondary metric for long-term investors and it is not a complete account of the risk members bear. Used alone, it can reward a narrow definition of prudence: low measured volatility, achieved through crowded mandates and identical benchmarks. 

The framework should retain ASD while requiring a companion disclosure of benchmark concentration. Each arrangement should disclose the benchmark families used across its mandates, the share of assets governed by each family, and the passive share associated with them. This will make mandate herding visible. It will show whether apparent diversification is genuine or merely a collection of portfolios tied to the same global market reference points. 

That is central to the framework’s purpose. A cost-first framework entrenches the herding it is meant to fix. The system today operates as a trading system, not an investment system. Volatility is a measure of trading risk and only a secondary measure of investment risk. Widespread use of this measure generates herding, whilst often mistakenly seeing this as a way to introduce prudence. Benchmark-concentration disclosure does not prescribe a UK allocation or prohibit global diversification. It gives members, governors and regulators the information needed to judge whether a portfolio’s risk controls are creating a new system-wide concentration.

Question 12: Do you agree with the proposed requirements for FLM disclosures and safeguards? Why or why not? 

NCC supports forward-looking metrics (FLMs) measures that use stated assumptions to show expected future investment outcomes and the proposed safeguards. They bring a necessary ex-ante discipline to the framework. Properly disclosed, FLMs can show what the investment design is built to deliver. 

That is also the mechanism through which productive-investment intent can be tested. NCC believes that every FLM disclosure should be required to set out the strategic asset allocation assumptions that underpin it, including the expected return, volatility, inflation and correlation assumptions used for each material asset class. Alongside those assumptions, disclosures should set out the productive-investment share embedded in the strategic allocation and explain how that share is expected to contribute to the member outcome. The disclosure should cover the whole strategic allocation, not only an illustrative sleeve. 

This is not a target or a demand for uniform portfolios. It is a transparency requirement: an arrangement using future assumptions to support its case should reveal the economic environment those assumptions depend on and the key judgements made in the asset allocation process. Common disclosure will also allow challenge where optimistic expectations are attached to a portfolio with little capacity to finance new productive activity. FLMs should complement, not override, observed results. Their value lies in exposing an investment thesis early enough for governance to test it, rather than allowing it to remain implicit. 

Question 13: Do you agree with our revised proposals in relation to Asset Allocation? Please provide details of any concerns you have relating to our proposals. 

NCC strongly endorses asset-allocation disclosure. It is CP26/25’s most consequential transparency measure because it shows what member capital actually does, rather than only the charges levied or returns reported after the fact. Returns and productive effect, not cost alone. The allocation table is where the framework can begin to describe what good looks like. 

The disclosure should separate primary vs secondary issuance new capital raised by an issuer, versus the later trading of an existing security between investors. In particular, it should distinguish primary UK issuance from secondary-market trading in UK-listed securities. That distinction should be applied across equity, debt, infrastructure and private markets. A holding labelled UK equity or UK infrastructure does not, by itself, show whether pension capital is funding a new business, project or asset, or simply changing ownership in a secondary market. This is the broken link between retirement capital and productive investment. The point is comparable measurement, not a prescribed domestic allocation. 

Two further fields should be added to the allocation table: the benchmark family governing each material mandate and the share of assets managed passively against it. Together with the primary-secondary split, those fields will expose the structure generating mandate herding. They will make visible whether the allocation is capable of supporting new investment, and whether apparently independent mandates are in fact tied to the same benchmark architecture. 

The framework should publish this information consistently across trust and contract arrangements. Without it, VFM risks judging outcomes while remaining blind to the investment system producing them.

Question 15: Do you agree with our proposed definitions? In particular, do you agree with our definitions of UK assets? Are there any areas where definitions need to be tightened to ensure consistency of measurement? 

NCC supports clear, shared definitions of UK assets. The definitions need one further discipline: distinguish the nature of the capital flow, not merely the location or label of the asset. The key split is between primary and secondary issuance. It should apply consistently to UK equity, debt, infrastructure and private markets. 

For equity and debt, the methodology should identify whether capital enters a new issue or an existing holding is acquired from another investor. For infrastructure and private markets, it should distinguish financing that develops, expands or recapitalises productive assets from a transfer of ownership in already operating assets. The categories should be consistently defined and accompanied by a short methodology statement where an arrangement uses estimates or pooled vehicles. 

This is not a call to reward one manager, asset class or geography in advance. It is a call to make like-for-like measurement possible. A UK asset label cannot carry the full policy meaning on its own. Two portfolios may show the same headline UK exposure while making very different contributions to new capital formation and facing different liquidity, valuation and governance characteristics. 

A consistent primary-secondary split will make the data analytically useful, avoid overstating productive effect, and permit proper comparison across arrangements. It will support a route- and product-neutral view of capital allocation rather than a prescribed allocation outcome. 

Question 19: Do you agree with our suggestion that the variable effects of complex charging structures on pots of different sizes should be disclosed separately from the effects of commercial variations of fee terms? Do you agree with our proposal for achieving this? 

NCC supports separating the effects of pot size from commercial variations in fee terms. They answer different questions. Pot-size effects show how a charging structure behaves as member savings grow; commercial variations show what different employers or cohorts are actually offered. Combining them can obscure both. 

Peer-to-peer comparison should be the default. Compare arrangements facing materially similar charging structures, employer circumstances and member cohorts before drawing conclusions about value. Publish the separate components in a form that permits users to see whether an outcome arises from the charge design itself or from negotiated terms. That will make commercial variation visible without treating every variation as evidence of poor value. 

The framework must not, however, allow cost transparency to substitute for outcome transparency. Low charges are not a member benefit if they are achieved by narrowing investment capability, locking portfolios into a crowded benchmark or delivering weak long-horizon outcomes. The relevant test remains value in the round: costs in relation to returns, service and the investment effect that the member’s capital supports. 

This distinction matters because complex charging structures can otherwise become a technical exercise detached from the member result. Separate disclosure, paired with peer comparison, will improve comparability while preserving the central principle that value cannot be inferred from price alone.

Question 21: Would it be helpful if we defined STP as a fully automated process for the purposes of VFM and asked schemes to confirm: - What percentage of payments fall within this definition? - The mean and range of all contributions falling outside this definition? 

Questions 24, 25 and 26 

Question 24: Do you agree with the proposed approach to consider decumulation aims separately for the 0 YTR cohort? Why or why not? 

Question 25: Would decumulation aims be more appropriately considered in step 3 rationalisation? 

Question 26: Do you agree with the decumulation aim sub-categories? Why or why not? Are they sufficiently clear, or do they need to be defined? 

NCC supports treating decumulation aims separately for the zero-years-to-retirement (0 YTR) cohort members at the point of, or immediately approaching, retirement. Their decisions, exposures and need for support differ from those of members still accumulating. The assessment should not, however, stop at the product label and arrangement assigned to decumulation. It should look through to the member outcome: the income, flexibility, risk management and service the member can realistically access through retirement. In particular ,the level and nature of investment risk-bearing post-retirement needs to be transparent. 

Question 28: Does the second factor for consideration proposed for weighting BLMs and FLMs risk excessive use of FLMs? If so, should we restrict this factor more explicitly? For example, to significant investments in assets affected by ‘J-curves’? 

NCC supports restricting any uplift in the weighting of forward-looking metrics to significant investments in genuinely J-curve assets. Backward-looking metrics (BLMs) measures of performance already achieved will inevitably remain a basis of assessment, but we are concerned about the behavioural impacts of backward-looking measures and their appropriateness in a rapidly changing world. Forward-looking evidence adds value where historic returns are predictably unrepresentative of a long-duration investment’s economics, not where it offers a convenient route around weak public-market results. 

Define a J-curve strictly. It should cover significant primary infrastructure investment, primary private-market investment and patient capital where early costs, deployment and development naturally precede cash generation or mature returns. It should not extend to public-market portfolios simply because their managers anticipate a recovery, expect valuations to improve or prefer a different market narrative. 

The restriction should be supported by clear evidence requirements: the size of the relevant allocation, the timing of capital deployment, the expected cash-flow profile, and why the effect is material to the arrangement’s assessment. The arrangement should also disclose the assumptions used and the point at which those assumptions will be tested against realised outcomes. 

Without this discipline, FLM weighting risks opening an optimism-forecasting loophole. With it, the framework can recognise the genuine economics of long-term productive assets without allowing projections to displace evidence, achieving the right balance between patient investment and accountability.