Yesterday I wrote about pension charges and the difference between poor practice and malpractice . At some point the value for money swing-ometre tips into rip-off territory and it’s almost always when those managing its costs of a scheme, stop acting in the best interests of the scheme.
The problem is particularly concerning in the UK for occupational pension schemes. The Pension Regulator has identified around 40,000 small DC schemes which do their own governance. Last week, the Executive Director for DC schemes at the Pensions Regulator- Andrew Warwick-Thompson, admitted that it was virtually impossible to get so many schemes to adopt the voluntary codes of good practice that he and his colleagues have issued.
It is clear that – from a Regulatory viewpoint – the explosion of small mastertrusts which we are seeing at present, isn’t helping. From the abstract perspective that choice drives competition and innovation, new providers should be welcome, but if those new providers will not submit themselves to public scrutiny, how can we trust them to be acting for their members interests (and not just for their own).
Let me explain what I mean in more practical terms. Almost every week, I or my colleagues are approached by a pension provider not on the Pension PlayPen platform, to sit alongside the providers that are.
We are happy to research (almost) all propositions. The only ones we won’t research are those that fail an initial sense check (we smell a rat).
First Actuarial then send out a detailed questionnaire to the new provider which asks probing questions that enable us to estimate the value for money of the proposition and its suitability to differing types of employers using the Pension PlayPen Choose a Pension Service.
Usually we get the questionnaires back and – depending on the quality of the response and of the information in the response, we then include or exclude the pension scheme.
Obviously, just because you are not on the Pension PlayPen platform , doesn’t mean you aren’t a good pension provider. The likes of Fidelity, Zurich and BlackRock are good providers who just aren’t offering workplace pensions to employers staging auto-enrolment today!
But if one of the smaller master trusts isn’t on our platform, or in the queue, the chances are it has failed our due diligence.
We aren’t going to name and shame these providers. But neither First Actuarial or Pension Play Pen think it worth exposing employers to providers who either won’t complete due diligence or demonstrate some major flaws in their investment, administrative or governance processes.
If you decide to contract with one of these providers and haven’t done your due diligence, then you put yourself at risk. That risk could either be Regulatory (you didn’t conduct due care in choosing your workplace pension) or Civil – the members of your scheme come back to you in the future and ask you what the hell you were playing at.
Choosing a workplace pension needn’t be hard, nor need it be expensive, it takes a few minutes to conduct due diligence using our platform and costs very little.
We already know of instances where employers are having to re-establish pension schemes because the Regulator has refused to grant permission for the trust. We know of a pension scheme that has had to reconstitute itself because of a potential fraud against it. In both instances, the problems were in the Governance of the original provider.
I’m happy to say that neither provider – though they enquired of us -made it to our platform
Those providers are co-operating, things are orderly and it looks unlikely that any member money will be lost.
But what of the plethora of auto-enrolment offerings that we do not know of, that never submit themselves to public scrutiny, whose offering is a secret, known only to those “in the know”?
As a rule of thumb, any pension scheme that won’t submit itself to public scrutiny or the due diligence of experts is highly suspicious and should be avoided.
Transparency is a great disinfectant.