The new 'Value for Money' Pensions Framework will be introduced after a consultation due to close in October.

The new framework, backed by Government, the FCA, TPR and DWP, was confirmed last night.

The new framework, including a 'traffic light-based' red, amber and green value rating system for schemes, has been designed in conjunction with the regulators to encourage schemes to improve their value.

Pensions commentators today welcomed the Government’s proposed approach to workplace pensions, saying it shifts the emphasis from cost to overall value but some say there are risks.

Tom Selby, director of public policy at platform and SIPP provider AJ Bell, said having a common framework for comparing the value for money of schemes should encourage schemes into improving their offering rather than focusing mainly on costs.

He said the metrics should be presented in an easily-digestible format they to make it easier for consumers to not only compare workplace schemes but also compare them with other pension savings products.

He said: “It is crucial to keep a firm focus on what pension savers really need to help them make informed choices. Simple, straightforward information is key, presented in a way which is easy for consumers to use when they’re choosing pension products.”

Jamie Jenkins, director of policy and workplace pension provider Royal London, said that if the Government takes into account lessons learnt in Australia the new approach could be a “valuable exercise” to further build on the success of auto enrolment.

He said: “This is a welcome development for workplace pensions and should start to redress the balance between price and value, which has become overly focused on the former.”

Workplace pension providers have welcomed the new approach, and said it should enable consumers to more easily compare schemes.

Mike Ambery, retirement savings director at Standard Life, said the traffic light system could encourage more people to save.

He said: “A public red/amber/green rating along with the policy of transferring poor performing schemes into better ones could improve transparency in the industry and ultimately enhance people’s retirement savings.”

He added that under-saving, “remains the UK’s single biggest pension challenge”.

Mary Cahani, head of DC client engagement at Invesco, the new approach could also be key to closing the advice gap in conjunction with efforts from the FCA.

She said: “Another important development is the regulators' efforts to address the advice gap between pension saving and retirement. If effectively designed, this initiative has the potential to empower key stakeholders to suggest products or solutions based on target market profiles. This would bridge the advice gap, enabling pension scheme trustees to provide guidance and support to individuals, empowering them to make better pension-related decisions and ultimately leading to improved outcomes for pension savers.”

However, pension experts warned that the devil will be in the detail as the new approach could have a number of unintended consequences.

Laura Myers, partner at pensions consultancy LCP, warned the Government from focusing its new approach too much on scheme size.

She warned that high quality schemes run by individual employers, often with the benefit of an employer subsidy, may not score highly compared with giant master trusts, even if member outcomes could be better.

She added that the new approach could also act as a barrier to innovation.

She said: “There is also a risk that schemes will be so afraid of even an ‘amber’ rating that they will be more risk-averse and afraid of being outliers. This could lead to ‘herding’ of investment strategies rather than rewarding schemes which are willing to innovate and invest for the long-term.”