There’s an urban (pension) myth that it’s not until your pension is worth as much as your car that you take any notice of it. My car has been written off twice and has a scrap value of £1000 so I pay a lot of attention to my pension.
Ask me to describe the way my pension is invested and I’ll bore you for hours, I look at the fund value every day and wake up in the middle of the night worrying about emerging market bond yields. I’m a pension freak/nerd/geek and there’s no denying it.
But most people I know haven’t a clue about any of their pensions. They couldn’t tell you what they are projected to get from the state (or even when), they can’t even remember what private pensions they have (let alone how they are doing) and most struggle to find a way of working out what kind of a future they’re heading for.
So roll on the pensions dashboard – which will help some people to get back in touch with their pots and pension rights and should give them an idea of how much work they’re going to have to do (both investing and working) before they can say the word “retired”.
When your pension’s worth more than your car
There comes a point (perhaps when your pension gets to be worth more than your car), when investment takes on a new meaning. This year, my pension rights grew by more than the amount I earned from work. My pension is working harder than I am!
For most people who are in a workplace pension for the first time (from auto-enrolment), finding out how your pension is doing will be quite new and I doubt more than 1% of us know how to go about comparing our experience with other’s.
So I was really pleased that the rating agency Defaqto published last week a study of the various workplace pension provider’s investment performance over the period that auto-enrolment has been running (3 years this July). Their work was sponsored by NEST and unsurprisingly it is heavily focussed on NEST’s performance. I won’t say influence by NEST as I have insufficient understanding on how some of the number’s were arrived at but the thing is that for the first time a study of the performance of the leading providers exists
Source Morningstar/ONS/NEST ; calculations defaqto
The survey is firmly pointed at advisers but as most people who are in workplace pensions don’t have advisers , I think we need a version for employers.
You’ll notice that Defaqto/NEST weren’t able to get numbers from NOW and People’s Pension – I don’t know why not. This makes the research incomplete and we at First Actuarial will be filling in the missing boxes and coming back with a set of numbers updated to this quarter which will allow employers/accountants and members to see what has happened to their money since they invested.
Now we come to the million squillion provisos that have to be shouted out to avoid people getting the wrong end of the investment stick. The point of these investment funds is that they are long term (marathon not sprints). A horse that started the grand national at the back- may finish at the front – which is why we shouldn’t be too upset about Standard Life’s lacklustre start. Some people (including NEST in their introduction) warn against using three year performance tables- we say that three years is too short to judge but long enough to be interesting!
The second thing to note is what defaqto publish on the next page of their report (which I’m not republishing as I can’t check the numbers and how they are calculated and whether it is really appropriate to use their particular methodology . What deqato publish are the information ratios for each of the numbers published above. These show the amount of return achieved for the amount of risk. These are known as “risk adjusted measures” and show the efficiency of the returns. If you’ve wasted all your energy to keep up with someone who is running effortlessly, the chances are you are not running very well. Your performance in the later stages of a race may fall away. You can see why publishing information ratios is a dangerous thing, you aren’t just looking at how the horse is running, you are giving an implicit judgement on which horse you think will win and that is very close to giving advice!
We think people want a little narrative to explain what each provider has been up to and why there are outlying numbers (like LGIM’s one year number).
What we’re going to do
First Actuarial is a very responsible actuarial consultancy and we don’t want to publish numbers which may be misinterpreted but we do think that employers and business advisers and especially interested members, have got the right to see plain simple numbers and make of them what they will.
So we will be building on the work started by NEST and defaqto and publishing performance tables like the one published above (only with all the numbers). We will be publishing these numbers with a commentary which we at First Actuarial will publish through Pension PlayPen so that “ordinary” employers and business advisers and interested members can see what is going on.
We intend to help people ask questions though we want to give enough commentary for most people’s immediate needs.
We will be hoping that some of the people who read these numbers will be prompted to ask questions and we will be giving them some places to go and ask those questions to.
We will be encouraging those in group personal pensions to get in touch with the Independent Governance Committees and questions of them.
We will be encouraging those in master trusts to get in touch with the trustees and ask questions of them.
We will be suggesting that members who want to understand things which aren’t specific to their provider contact the Pensions Advisory Service.
We will be suggesting that employers who want regulated advice on what is going on, speak to a regulated adviser.
And in the new year we will publish a more detailed piece of work (which we may charge for) which looks at these numbers in a more considered way and we are going to feed that research into the Value for Money debate. Because the IGCs are due to be reporting again on value for money in April 2017 and we want them to have some proper help on just what their insurers are getting by way of results (for what they are paying for their fund management). Likewise, the chairs of mastertrust trustees are going to have to make similar pronouncements.
Pension pots are your assets.
At a recent meeting of the PPI, Jeannie Drake spoke up for auto-enrolment and called for those in the room to engage with employers, business advisers and members so that they got interested in what their pensions were actually doing.
Most providers now give members access to the value of their workplace pension on-line but none (to my knowledge) allow the information they give out (fund values, fact sheets and investment guides) to be compared to what you could get from the provider next door.
The history of consumerism is plotted against breakthrough points when comparative data was made accessible to ordinary purchasers in an accessible way. Which did it in the 70’s, Autocar did it in the 90’s, the price comparison sites arrived in the 90s and in the last fifteen years we have websites that not only enable you to find out how your purchase is faring, but gives you the chance to do something if the choice you made turns out to be a bad choice.
Pension pots are your assets, they are for your benefit, you have property rights on them and First Actuarial and Pension PlayPen will find a way (compliantly) to make sure you have access to the information you need and deserve.