Data or opinion? What’s the best measure of value?
Most investors when looking for evidence and would prefer to trust data.
Opinion is now measured by “the crowd”, the wisdom of a great number of people is turned into data. The opinions of experts counts for something but successful enterprises are driven by bigger data.
It worries me that there remains in my world of pensions, an oligarchy of experts who’s opinion counts for more than big data. I refer to the “usual suspects who’s names occur on the majority of IGC committees, master trust boards and the governors of our pension institutions.
The saddest statement from the chair of an IGC or Trustee board is “in my opinion , we offer value for money”. I expect to hear this statement repeated again in again throughout the upcoming IGC reporting season.
The opinion of those who govern our pensions is only as good as the data that it’s based on
Share Action has produced a review of the 2017 annual reports produced by the independent governance committees (IGCs) for contract-based pension schemes (which they began last year after the FCA said it was indefinitely delaying its own review). They’ve focused on the transparency of the IGCs’ reports, to see if an external observer could understand what value scheme members are getting from the different providers.
While they’ve seen emerging good practice in the reports, they found that many of them were too vague and unsubstantiated to allow an external observer to understand the value being offered by providers. For example, more than a third did not state what members were being charged and nearly half gave no data on investment performance. To me, this doesn’t meet the FCA’s policy intent, which was to increase transparency and encourage comparison between IGCs.
Clear and comparable reporting is needed from IGCs to demonstrate transparency and build accountability. It is important for IGCs to assure scheme members that this is not just another case of industry assessing industry, and that this governance gap is truly being filled.
Who watches the watchers?
The Share Action Report produces a ranking table of IGC reports that correlates pretty well with the rankings I produce in April (see bottom of article)
Some of the low scores are easily explained
What Share Action (and I) are asking for.
Share Action have made some recommendations for the IGCs on how they can report more effectively. They have also recommended that the FCA should set a specific definition of value for money and issue clear, comprehensive guidance on how to assess it. The widely varied standards of assessment and reporting demonstrated by IGCs indicate that a more standardised approach is required.
In case anyone thinks that master trusts and single occupational schemes hold out a gold standard, let’s be clear – they do not. If anything they are less accountable, they do not report in one go and the majority of their reports are only available to members. Fortunately , the Pensions Regulator does monitor what is going on and this week issues fines to a number of miscreant trustees whose reports were considered inadequate.
You can read what the Pensions Regulator is doing to enforce better standards of reporting here. I look forward to the DWP’s conclusions following its work on value for money disclosures which is due out later this year.
But more can and should be done by the pensions industry to independently monitor value for money and provide ordinary people with help about their pensions.
To this end, the IDWG are producing definitive templates which collectively can capture the data we need to understand what we are paying for funds.
To this end, a disparate group is working to collate further published data on the costs for members of participating in occupational pensions (including master trusts) and group personal pensions.
To this end I hope can generally working to create definitive performance data that can compare one form of workplace pension with another by way of absolute and risk adjusted performing.
And from these data sets, I hope IGCs will be able to provide value for money ratings that can be used to rank all workplace pensions against each other in league table. Those offering most value at the top, and those offering least , at the bottom.
My ratings of the IGC reports in the past two reporting rounds. Note these are based on my personal opinion and not data! I will be looking to incorporate the Share Action transparency ratings as well as other ratings (for instance the Pension Bee Robin Hood Index) into my assessment of engagement, effectiveness and transparency (in VFM) in 2018