There’s hardly anywhere in public life that isn’t benchmarked by a league table. Hospitals and schools are the obvious ones but “comparators”, “benchmarks” and “measurable” are the watchwords for our decision making.
This is not the case in financial services, or at least in the part of financial services I work in. Creating value for money scores for workplace pensions is something we’ve been doing for four years now and thousands of employers have chosen using the pension playpen. But we have and will only touch the surface of the decision making going on in the UK. Most decisions taken on the selection of workplace pensions are not subject to any audited process and seem as random as my selection for the Grand National next week.
This failure to evaluate the workplace pensions employers choose for their staff will have a long-tail for those who end up in the wrong kind of scheme. Last night I was reading the Abbey Life IGC Chair report that focusses on the workplace schemes taken out with Abbey Life, Hill Samuel and Target Life. There are only 10,000 souls in these schemes and less than 500 still contributing. But in there day, these three insurers were proudly boasting of their capacity (and were widely sold by advisers).
I concluded that for all the Governance offered by the IGC, now that exit penalties have been reduced, these remaining policyholders should be considering taking their money elsewhere. No doubt I am straying here into individual advice.
This is the problem, even though these workplace pensions would be struggling in the Conference (if they were a football team), we cannot point out that your money could be with Chelsea or Tottenham (add your team here).
Part of this is our fear of using past outcomes to predict future outcomes but most of it is because we have lost the balls to say it how we see it.
People ask me, “should I choose the top-rated workplace pension on Pension PlayPen” and I am supposed to say that I cannot tell people what to do. But that top ranking is there for a reason. It takes into account our fundamental view of the provider and the suitability of the provider to the employer. Our top-ranked workplace pension isn’t a random guess. When people ask me for the best provider for their circumstances I tell them to look at the top-rated.
Of course top-rated horses do not always win, but the more information organisations gather, the more accurate they are likely to be and the greater conviction they should have.
Which brings me back to my starting question
Do league tables work?
It looks like benchmarking is a dirty word among the IGCs this year. I have now read and reported on six Chair Reports and I have yet to see one that directly references either another report or another pension provider.
The NMG research into employee perceptions seems to have produced no definitive picture of winners and losers but even if it had, the providers had vetoed the use of the information for comparative purposes. The consumer remains no wiser as to whether punters prefer life in one workplace pension over another.
Similarly, any form of comparative benchmarking on the “money” part of the value for money equation has been supressed. Apart from Legal & General, who are actually telling us what we are paying for their funds, we have nothing but assurances from other IGC Chairs that there are no nasty surprises.
It’s a bit like following a football team and not being able to see how they’re doing in the league till a big reveal at some point in the future!
The big reveal will probably only happen at the point an individual wants to start spending. If a football club is under-performing , the time to change manager may be prior to , not after relegation!
Whether the table shows actual performance, risk-adjusted performance or the slippage in performance from transaction costs, it’s this information that investors and fiduciaries need, to take decisions.
Frankly this information is not in the current IGC Reports. Nor is there any report of reports that is likely to bring the reports together. I will be publishing at the end of the season, a league table on the IGCs themselves, listing them on the quality of tone, effectiveness and progress to a VFM statement. But that is only measuring the governance (the sizzle not the sausage).
What we need, and need urgently, are league tables that show how these workplace pensions are performing against each other in the three areas I have mentioned. What we have learned from NMG is that the two things people want from their workplace pension is good performance and communication of comparative performance.
Frankly that is all that you can get from a league table. All the comfort factors looked at by NMG are irrelevant by comparison.
We may be giving people performance, we may be slashing charges, but we are not showing what this means and that’s because we are not providing performance tables.
If we want to engage our public, we need to learn from hospitals, schools and sport and publish details of how these workplace pensions are doing.
We’ve got to accept that people will look at winners and consolidate to them and they will be brutal and pull money from losers. We cannot operate a free market any other way.
As for the benchmarking of value for money, we need to be equally open. The cost of running a fund should be there for all to see and should be available to anyone who asks that question. The value of a fund should be measurable and measured. There could and should be a value for money score for every workplace pension default investment option by April 2018 and these scores should themselves be published as a league table.
The most attention people will give their pension is probably five minutes. For most people, a pension report should simply be a league table which shows how they are doing against other pensions and a couple of footnotes about how the table was compiled.