Everybody need standards

StandardsAll week long I have worried about standards.

The DWP are shortly to announce what they consider the minimum standards should be for a scheme to be a “Qualifying” workplace pension.

Yesterday I spent time with Kevin Odell and other members of the Altus team discussing the need for common data standards for auto-enrolment software.

This morning I am locked in a debate with my colleagues over whether the website we’re building should “let people work it out for themselves”. Or whether we need to give default ratings on the quality of pension providers and their workplace schemes.

Steve Webb famously said that we didn’t need to legislate on the price of a can of baked beans because the market finds that price. But he didn’t add that every can has a series of disclosures on “best before” ingredients” “storage instructions” and”nutritional information” that allow you to make your purchasing decision in an informed way.

Many will buy beans on price, some on brand , a few on taste and a very few on the nutritional differences. The can I am looking at has three quality marks telling me the can is recyclable, the contents suitable for vegetarians and there’s a third with swoopy arrows that no doubt says something to bean officanados.

I buy beans with great confidence.

The same cannot be said for “pensions” (or “auto-enrolment software”). No matter how much information we put on the tin (and disclosure documents can run to 20 or more pages) what people look for is a simple statement that tells them whether the product is any good or not.

There are a few pension kitemarks that attempt to do this. The NAPF have introduced the Pension Quality Mark which tells you that the employer is making a reasonable contribution  and that the charges aren’t outrageous but this is something that the employer purchases to validate their scheme – it doesn’t help employers chose a provider.

Stakeholder Pensions were required to have minimum standards which made sense in 2001 when they were introduced; those standards have changed the market (in a positive way). But they are now looking a little tired and the new minimum standards being brought in by the DWP (which we hope will be accompanied with some guidance on best practice from the Regulator) will take us a lot further to providing an answer to “what makes for good?”.

Whe it comes to the various solutions to the complexities of auto-enrolment regulations, employers are really in the dark. You can see all the demonstrations you like but until you run your first payroll through the assessment and contribution tools , you will be keeping your fingers crossed with precious little but trust in the brand you are using. Altus is right, the sooner we get common data standards – the better.

Employers need help in taking these decisions, guidance that provides them either with a method that helps them “do it themselves” or a series of default ratings that allow them to take a decision using the experienced judgement of a trusted source.

As Which did as for consumer durables, as www.moneysavingexpert.com did for financial management and as I hope to do for pensions with  www.pensionplaypen.com a portal will emerge which will make it possible for the purchasing public to buy wisely.

I have worked for nearly 30 years advising people on pension purchasing decisions and whether I am talking to the CEO of a FTSE 30 or to a financial novice, their capacity to take decisions about what is “good for them” is very limited. They look for guidance, for defaults; they ask what others like them have done and they take consensus positions. The importance of defaults is enormous and the need for guidance immense.

The more complicated the concept the more important the need for clear guidance. The lessons of ISA purchasing is that you can make the purchasing decision easy and people will “self-serve”. The lesson for pension people is that if you make the purchasing decision easy, people will self-serve.

To make it easy, we need to find a new language, new technology and most of all a new attitude to the sharing of the information that people want.

baked beansFor too long, pensions has been impenetrable because there have been no standards. To buy into pensions, knowledge people have needed to spend money on information that, were they buying baked beans , they could read on the packet.

Pensions aren’t baked beans. In terms of the importance of a purchasing decision, the pension you buy ranks with house purchase and career moves as the most important financial decisions you take.

Nevertheless, pension schemes do not need to be too complicated for employers to buy into schemes online. Indeed it should be possible, the standards of “for good” being in place, to make comparisons between pension schemes on value for money grounds. VFM is a composite measure of the cost for the quality of services bought and could be expressed in any number of simple ways- perhaps most easily as a % mark (the price per 100g!).

The DWP, the Pension Regulator , Altus, First Actuarial , the Pension PlayPen and all the  other organisations that wants to restore confidence in pensions , need to work together over the weeks to come to make sure that the standards that are set are embraced by the 1.2 million companies that will be buying into Qualifying Workplace Pensions in the next five years.

We need to set the standards and if we do, we will start to restore confidence in pensions.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in auto-enrolment, pension playpen, pensions, social media and tagged , , , , , , , . Bookmark the permalink.

20 Responses to Everybody need standards

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  3. Tim Harries says:

    Provocative as ever and raising some important questions on buying behaviour. Your choice of analogies in the consumer market is interesting. Both Which and moneysavingexpert.com involve a ‘go to the expert’ type of customer response. This means there’s still a degree of deferring to the grown-ups going on. If you look at other online customer behaviours and services, you have a very different picture. There are several examples of sites providing access to customer feedback on a very direct basis, with an ability to purchase off the back of it. The buyer is in control and the specialist knowledge of intermediaries has largely been usurped by customer experience of product realities. Larger companies may well need to maintain a governance process which relies heavily on an advisor, but in the new world are we far away from customer-led, peer-to-peer review sites in the arena of corporate pensions and benefit packages?

  4. henry tapper says:

    We hear you Tim Harries and your comment gives me courage to try harder- you are of course absolutely right – it just seems a bit scary!

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