The saddest statement I heard last year was from an adviser who told a room
“we have given up reporting on outcomes, outcomes always disappoint”.
It is not just IFA’s who don’t like to report on the outcomes of our saving and investment. Over the five years I have been analysing IGC chair statements, I have only seen one (the Prudential) which has addressed the very simple question
“are we providing value for our policyholder’s money”
Instead, they pursue ever more extravagant frameworks which break down the concept of value for money into categories such as administration, engagement, security of assets and many more. This is like reporting on a car in terms of its carburettor and exhaust systems, rather than on whether it is a pleasure to own.
The function of a workplace pension scheme is to take money earned in the workplace and return it to savers at the end of their working careers. Ultimately, these workplace schemes are judged by savers on whether they achieved that function well or badly.
The problem people have is that they have no way of knowing what has happened to their money , nor how it has grown while in the charge of others. But people – when given that information on their savings , become very interested. To use the word that IGC’s like to use, they become “engaged”.
We don’t engage with carburettors and exhaust systems
Confident car manufacturers allow people to test drive their cars, they allow journalists to rate the car for a range of things that allow people to assess the value they get for their money. They are prepared to submit their products to close scrutiny, knowing that the verdict may be damning.
This transparent approach doesn’t extend to financial services and especially pensions. The thought of telling his clients about “outputs”, was too much for the adviser and the task of telling savers about the outputs of their investments seems to overwhelm IGCs (and equally trustees).
Instead, they produce reports that talk about nuts and bolts, carburettors and exhausts, but don’t assess the main function of a workplace pension at all.
In 2017, the majority of IGCs commissioned NMG to tell them what people wanted to know. NMG presented people with choices about comms and engagement and administration and security and all of these things were considered important but not as important as one thing – the amount of money at the end of the savings period. What people wanted to know was how much they would get from their pension saving.
So what about charges?
People do want to know how much has been taken out of their pension schemes to pay for the scheme’s management. But they don’t need this information as a matter of course, it’s the kind of thing you ask if you are “looking into something” and for the most part, they’ll want to know the detailed information is available, they would like a headline pounds shillings and pence number on what they’ve paid.
I know that I paid £1190 last year for L&G to manage my pension and I know i incurred some extra costs for transactions that amounted to around £100 in total, I could work this out by looking at my online statement and studying the numbers at the back of the IGC report.
You might think that was a lot to pay (and I’d agree), but I think I got value for that money too, mainly because I know a great deal of that money went on paying people at L&G to make sure my money was invested in a responsible way. When I looked into things, I was pleasantly surprised.
What people want.
In five years of thinking about VFM, I’ve boiled down the question “what do people want” to two things. They want to know what they are going to get and they want to know what they’re paying to get it. That converts in pension speak to outcomes and charges,
People – when presented with two numbers – one the value of their pot and two , what they’ve paid for its management , have one further simple question
“is that good?”
That is the question that IGCs need to answer, and so far (with the exception of the Prudential) none of them have answerer it. Because none of them have a benchmark for what good might be.
What people want is either a benchmark return (the Prudential CPI +4% for example) or a “relative benchmark” – “how have other people like me done?”
The AgeWage score is simply answering that question, it tells people , in a single number , how you have done relative to how other people just like you, have done elsewhere.
Is that good? I think it is very good. I think it tells the truth in an transparent way and I hope that some IGCs will, as they prepare their 2019/20 reports, snd me a mail. It generally takes me two weeks to issue a report to IGCs on how people have done using our scoring system.
For Trustees – the same.
For employers – the same
And if you are an ordinary saver in a workplace pension or if you have your money in a SIPP or an old-fashioned personal pension , I would like to hear from you too. Because we are hoping to conduct a trial of these scores for individuals with the FCA – later this year and are looking for guineau pigs!