I’ll give you three good reasons
- While we can get reliable comparative data on the performance , reliability and fuel efficiency of a car, we can’t for pensions
- While cars are road-tested and best-buy lists published in magazines , on TV and on the web, no such wisdom’s forthcoming from the pension crowd.
- We can stroke. sit in and test drive cars, no-one’s given us that tactility with pensions.
Now I’m ready to accept that it’s hard to get on intimate terms with your pension plan and you aren’t going to show off in it to your next date, but there should be nothing stopping magazines like Which from road-testing pension plans – like they do cars of bank accounts or credit cards-is there?
Well yes there bleeding well is! Let’s take fuel economy with a car – there’s a British Standard attaching to the measurement of fuel economy, we all know what mpg means (even if we don’t buy petrol in gallons!). The equivalent measure in pensions is “yield drag”- eg the impact on performance of the costs of running the thing. As all the world now knows, we don’t know what the costs of pensions are because there is inadequate disclosure. Free switches turn out not to be free, lifestyle programs (which involve multiple switches) are not even tested for their efficiency and the impact of transactional costs is not included in the TER because the ABI consider those costs are not charges from which their members profit! Time for the Government to get the BSI down to ABI towers and sort out some common standards methinks!
Creating reliable data by which the experts can compare a pension’s “fuel efficiency” , its “safety record”, its “0-60” and its braking (don’t worry I won’t go into all the analogies) is still along way off.
But even if we could get this data, there is no proper means of comparative assessment. Where are the league tables that rate the contenders for your company’s auto-enrolled contributions? If they exist , they are closely guarded by specialist firms of consultants who will sell you a peep of their research for a kings ransom. That’s not how it should be.
Companies will need this quantitative data when they start auto-enrolling. Employees who are frog-boiled into a pension plan are going to start asking employers exactly why they chose Standard Life or NESt or the Social Housing Pension Plan and what they are doing to make sure their pension provider is cutting the mustard. Employers who chose poorly and/or don’t review their decisions will be open to criticism and in extremis, class actions. It will not be enough in years to come to point the finger at an adviser who may or may not still be in business but who is less than likely to fork out restitution when the proverbial hits the fan.
Which brings me back to tactility. How do these pensions actually feel to those who use them – what is the qualitative feedback available to the purchasers of company pension plans and those who make sure they remain up to the job? Every single company in the land will need to be involved in pensions one way or another within the next five years. Every company will take a purchasing decision and you can be damned sure that public interest in what is going on will increase.
In my view , we are woefully unprepared for the new demand for information on pension plans. We need to start to get common standards to assess and compare the various options on the market – hence the need for full disclosure and common standards, we need to find ways to organise the data we get into common formats (like league tables) so people can easily work out what’s working and what’s not and finally we need to get some anecdotal information into the market so that people can get a feel for what we’re buying into. Earlier this month I tried to set up a meeting to give one purchaser the collective experience of providers from a number of advisers – my attempt hit the rocks because the advisers felt they could not share experience without the risk of being considered “advising”.
The purpose of the Financial Services Authority was never to prevent the free flow of such information. We need our Regulators to step up to the plate here and make sure that companies can find the pension plan that suits their staff without the current impediments.
I am not talking about the companies staging in 2013 with 500 or more employees, I am talking about the vast hinterland of SMEs in the UK who have little or not access to the kind of quality information larger firms take for granted.
So my shout out this morning is to the regulators;- let’s make sure we get off our high-horses and start thinking about our consumers, the owners and managers of small and medium sized companies who need a way of buying a company pension plan with the confidence they select cars.
- Does your pension scheme need advice? (henrytapper.com)
- Pensions Bindweed- pretty and deadly (henrytapper.com)
- Send in forensic actuaries to sort out these “rip-off” pensions! (henrytapper.com)
- The Corporate Pension Plan (moneymanager.com)
- DC road testing – August Play Pen Pension lunch (henrytapper.com)
- Pensions face ‘death spiral’, says Ros Altmann (telegraph.co.uk)
- “The Employer’s Duty” (henrytapper.com)