No value without trust- PPI on “value for money”


Yesterday , the Pensions Policy Institute  delivered its “Value for money in DC workplace pensions” paper. The report can be read or downloaded from this link

The central thrust of which was that “value ” was undervalued and too much attention was being paid to the “money” being sucked out of people’s retirement funds by the “industry” of intermediaries taking a cut of our savings.

Sadly I cannot speak freely about , or report freely on what was said, because the  debate following the formal presentations was  held under Chatham House rules. This debate constituted the larger part of the meeting.

If, as the Transparency Task Force is contending, the public is not being given the whole picture, then restricting the reporting of the debate on value for money in this way, seems counter-productive.

The context of the excellent report is the staging of auto-enrolment by 1.8m employers, the OFT report that told us we don’t know what we’re buying and most recently a number of political interventions directly criticising the pension funds industry for destroying trust, reducing the incentive to save and devaluing the “value” in money.

The most newsworthy of these interventions was from David Cameron, who said in the House of Commons that consumers’ lack of understanding of the true cost of investing has undermined their enthusiasm for retirement saving.

Responding to a parliamentary question about the complexity of fees charged by investment managers, the prime minister said on Wednesday;

“I think one of the things that saps people’s enthusiasm for saving in investment products is just a sense they do not understand the fees and charges”.

What follows is my report of the meeting of the PPI which I have circulated to my colleagues. I have redacted any questions from the open debate as they cannot be properly understood without the context of questioner and answerer.

I’ll add my question (which I think I can report) which was that without the buy-in of employers delivering workplace pensions to staff (via auto-enrolment), this debate is theoretical,

“does the PPI recognise that the employer needs, before it considers member outcomes, to have been delivered value by the provider, against the money the employer has spent setting up and operating a workplace pension?”

I would add that there were virtually no employers or business advisers in the room- representing the 1.7m organisations still to stage auto-enrolment.

The PPI’s “Value for money in DC workplace pension reports concludes

“It may not be possible for IGCs and trustees to attain the best outcomes for all members. These bodies may be required to make decisions that are broadly in the members’ interests. It is important to consider all determinants of value for money rather than narrowly focussing on charges”.

From this statement  the PPI made two recommendations

  • Extending the role of trustees and IGCs may be needed to help individual who are making decumulation decisions
  • Elements such as charge structures should be transparent to ensure value for money for members.

How this conclusion was greeted

This conclusion is insightful and this is an insightful piece of work. It was welcomed as such by all the panel of experts. It did not however meet universal  admiration.

By focussing on defining value rather than pinning down “costs and charges” the report was felt to provide fresh perspectives, but there was frustration in the audience that the debate was trying to run before it could walk (the debate should start by pinning down costs and charges).

One industry leader  criticised the PPI approach for confusing value for money with good DC outcomes. In particular, the emphasis the report has on increasing contributions may be right for good DC outcomes, but high contributions did  not mean that a scheme was delivering good value for money (no matter how “good ” its outcomes”

Others in the audience suggested that an outcomes approach to value for money was necessarily backward looking, it would only be possible to assess if VFM had been attained retrospectively- not a good measure for those who found out retrospectively they had missed out.

What the report says

The report was commissioned by Standard Life which supported a central thrust of Standard Life’s public policy, that it’s outcomes that matter and that value is as important as money.

Specifically, the report suggested

  1. There are several official definitions of value for money (OFT, tPR and NAO)
  2. It may not be possible to attain the best outcomes for all members
  3. 3 outcomes seen as positive by members (value of pot, security of pot, trust in scheme)
  4. VFM judged by Employers, IGCs and Trustees and by members (at different times and in different ways
  5. A feedback loop could ensure scheme met member’s needs (admin,comms,governance)
  6. Value can be driven by good governance (comms/transparency/default/admin/charges)
  7. Contribution rate biggest impact on outcomes
  8. Employers can influence contribution rates (directly and by nudge+engagement)
  9. Charge level alone cannot be taken as an indicator of outcomes
  10. Volatility management in accumulation can lead to lower downside risk
  11. Member decision making at retirement critical to VFM of decumulation
  12. Focus so far on accumulation decisions, insufficient attention to at retirement support
  13. Decumulating through a cash ISA could mean money ran out 25 years earlier than had it been kept in the pension fund
  14. Cashing out at retirement could lead to a big tax bill

In addition to the conclusion in the body of the report above, the presentation given bby Melissa Echalier (from which the 14 points above are taken) made two further conclusions.

  • Extending the role of trustees and IGCs may be needed to help individual who are making decumulation decisions
  • Elements such as charge structures should be transparent to ensure value for money for members.

Following the initial presentation by the PPI, there were a number of short presentations.


Barry O’Dwyer – Standard Life

A restatement of the Standard life agenda (less attention to the money, more to value).


David Bateman – DWP

Government would not prescribe a single definition of VFM. Would result in definition being challenged for not being inclusive. He urged providers, IGCs and employers to engage “often and well” with members. The DWP were not just concerned about non-engagement but “wrong engagement”, where people took bad decisions based on poor information. IGCs were set up to remedy this.


Andrew Warwick-Thompson-tPR

Didn’t see VFM definition as being one and done, but evolutionary over time. He stressed that both occupational DC and GPPs were “collective schemes” and that members would have decisions taken for them in the most part. He stressed the role of IGCs and Trustees in providing defaults. He stressed the need for a consistent approach to VFM across all types of DC.

He described the PPI as offering a different lens

  1. In focussing on contribution rates as important to outcomes
  2. In focussing on replacement ratios
  3. In focussing on decumalation (he stressed employers were not in the “business of decumulation)


Doug Taylor – Financial Services Consumer Panel

Doug repeated many of the themes of the Transparency Symposium (April 29th). He commented on the single total charge cap in Turkey (and the work of Chris Siers on costs and charges). He mentioned the work of Novarca. He stressed the importance to the consumer of knowing what they were paying for the “value” they were getting.

PPI -A platform on which to build.

My conclusion is that by establishing value at the centre of the value for money debate, the PPI will have won the hearts of those in the room, particularly the many workplace pension providers concerned by the comments of David Cameron and recent comments in the press from Conservative MP Tom Tugendhat.

But meeting in a room in Methodist Central Hall does not make the criticisms go away. Trust has been lost, not just by savers but by those who organise savers – employers. Restoring confidence in pensions means rooting out bad and malpractice as well as promoting value.

The PPI are well placed to do both and I hope that they will build on this platform to help restore trust in pensions by helping us to assess if we really are getting value for money from our pensions.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to No value without trust- PPI on “value for money”

  1. Mark Meldon says:

    Henry, why do we have these ongoing issues with excessive DC fees? There are options which, as you know, are attractive from a value for money point of view. For example, I have several SIPPs in excess of £750,000 in size and, by using a great administrator and index funds end up with a “pounds and pence” charge of approximately £2,205 per annum, including my advisory charge. That’s less than one-third of one percent a year. Sure, these things cost a bit more to set up, and I understand that there are many “layers” to be fed in the DC world, but I do think that the time has come to drive down excessive fees – it can be done and the client/member can still receive a good service.

  2. henry tapper says:

    The simple answer is “layers of intermediation”. The less layers, the less you pay. If you are are managing the assets directly then the layers of intermediation are dramatically reduced!

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