Treating savers as investors.

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Considering the importance that pension providers place on winning new business, it isn’t surprising they find keeping it so unglamorous,

The banner headlines that get reported internally and externally are new business wins, they are what excite the executive and shareholders, but the new business opportunities arise because of deficiencies in the service, the breaking of promises at point of sale and the failure of providers to engage the people who really matter, those saving or investing for retirement.

I speak as one who spent many years selling Eagle Star and Zurich and I suspect our success was based on the failure of rivals (especially the Equitable Life). The Equitable failed to meet the promises they made (their service was second to none), but many other providers in those days were prepared to put out the flags to win business and had no concept of customer servicing as an extension of “sales”.

For this reason, many established players were reduced to closure, I think of the great names of the time , including RSA, Prudential, Threadneedle, Schroders and Invesco, all of whom ceased writing new business when the cost of sale could not be justified by the profitability of the existing client banks.


What has changed?

We are down to a handful of insurers competing in the workplace for new mandates, the master trusts are hoovering up new business, typically on a service led proposition that appeals to employers because it is payroll rather than investment led.

The arrival of auto-enrolment has shifted the value proposition towards “ease of use” and away from “investment performance” to a point where the dial may have swung too far. I suspect that many of the reward managers who are seeing millions a month disappearing to a workplace pension, are beginning to wonder what value they are getting for their money.

My suspicion is based on several requests I have had to collect data on behalf of employer governance committees by large organisations struggling to get the performance data they want to make a value for money assessment for themselves.

This coupled with inadequate reporting to those staff saving or investing for the future, means they struggle to report on the progress of this line of corporate expenditure to their boards. This is a problem for the Reward function.

It is a symptom of a chronic problem; pension providers – of all shades – under invest in ongoing service which leads to employers getting disillusioned by  the service on offer, re-tendering and ultimately moving providers. This process is fatal, as witnessed by the casualty rate of pension providers in the last 20 years.

Not enough has changed!


Treating these customers fairly (TCF)

We are now nearly two years on from the launch of GDPR and we are aware of the difference between compliant and non-compliant data. However, we are still finding data requests made by individuals being turned down on a variety of spurious reasons and we’re finding that employers are not being given access to anonymised data on the plans  that they sponsor , on the basis that it “isn’t their data”.

Whether the plan is trust or contract based, employers do not have a right to see personal data. However, if they are to have confidence in the provider’s ongoing capacity to deliver, they have a right to know how savers and investors are doing.


Treating savers as investors – part of TCF

I am particularly keen that those who are saving for their financial futures are made aware that they are actually “invested”. This distinction isn’t always clear to savers. If you aren’t clear of the distinction, watch last night’s edition of Martin Lewis’ TV show where he makes it absolutely clear – saving is where you get a promised return and investing is where you take a risk and get what the market gives you.

If, as surveys show, many people saving into workplace pension , do not consider themselves investors, then those people who are sponsoring these schemes have a right to be concerned about the performance of people’s investments.

Because if something goes wrong, as went wrong with the Equitable and to some extent , some recent absolute return funds , then it is the employer who is on the front-line of staff complaints.

The data requests I see being denied some of Britain’s largest employers are requests to see how individual pension pots have performed and the employers I am talking to want to see how they have performed relative to other invested pots, and how they have performed relative to cash (the risk free rate).

They want to see whether it is worth their employees investing with the provider they have chosen and whether it is worth them investing at all. These are reasonable questions for non-pension experts to ask and questions that providers should be able to answer. If they cannot answer these questions, then there is no point in governance.

Employers are the proxy for their staff in asking this question , they are part of TCF.


And what should employers tell their staff?

In an ideal world, an employer would be able to point staff to an IGC or Trustee chair statement and give that as evidence of the value the saver got for their money.

But that isn’t happening and we need to ask why. While the IGC does a behind the scenes job for the saver, it doesn’t have front line duties like employers. Employers don’t use IGC reports because they don’t talk to their workforce, they are too general, too high up “the ladder of abstraction”.

Some employers want to share value for money reports with their staff and (in my experience), they would rather tell staff “how it is”, than let them continue under the illusion that they are carrying no investment risk.

Because they know what good governance looks like – good governance is about telling it like it is, especially to the people taking the risk.

So we at AgeWage are going further, and suggesting that value for money reporting should not stop at the employer governance committee. We think that employers should be asking their trustees and the providers themselves , to make full disclosure of how their staff’s savings or  investments have done.

They need to make the distinction between savings and investments , as Martin Lewis does and – where employees are taking investment risk, they need to make them aware that this is what they are doing.

They need to make sure their staff know what is going on with their pension savings or investments in good times and in bad.

 

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About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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