Not so long ago, the then pensions minister likened choosing a workplace pension to choosing baked beans. There are many brands of beans on the shelf at different prices. Shoppers buy not on money, but value for money. They have high-level information about calories and ingredients and more detailed information about additives. They also have memory of previous purchases and how they played with family/customers.
“Choosing pensions , whether we are employers or individuals should be no harder than choosing our brand of baked beans” – I think that sums up Steve Webb’s argument.
In practice it is very difficult to make meaningful comparisons between the value we get from our different pension pots and it’s pretty tough for employers to work out whether the workplace pension they chose when staging auto-enrolment is doing what it said on the packet.
I am told this was the message of Edwin Schooling Latter when talking on behalf of the FCA at Just Retirement’s. (Sadly I was presenting elsewhere and got to the conference late).
Why can’t we know what we are buying?
This was also a week when the FCA delayed the disclosure of the “additives” on the pension can of beans. For more details, read earlier blogs
Of course not everyone reads about the emulsifiers on a baked bean can, for me it is enough to know that information is available to me. But many do, and people notice if this information isn’t there.
The pensions equivalent of “additives” are the costs we pay for the management of assets, the hidden ingredients that can be as damaging to our wealth as nutritional additives are to our health.
And what about experience?
We will buy baked beans many times but we make meaningful purchasing decisions on pensions only once or twice in a lifetime. Our experience of our pension is controlled by the marketing of the pension provider, not by the good the pension did us.
Schooling-Latter’s point was, as I understand it. that we should have a way of comparing experience of a pension pot in a reasonable way.
By the end of today, my little start up will have explored the experience of 1 million pension pots, establishing the internal rate of return achieved on each and comparing this to a benchmark we have established with Morningstar.
We know which workplace pensions have delivered good outcomes and which are yet to do so. We don’t have detailed information on why , but from the conversations we are having with fiduciaries, providers and employers, we are beginning to understand what has worked over the past twenty years and what hasn’t.
With the co-operation of legacy providers, we hope to explore the ocean depths and do similar work on pension data going back to 1980 (we have a little- not enough).
We hope , through this work, to help first fiduciaries and then savers understand what has happened to their savings. How the savings have been influenced by the growth strategies of providers and how de-risking has contributed to or taken away from saver’s outcomes. We will also be able to see the impact not just of overt charges (AMCs and so on) but of the additional costs of the additives.
Finding out how your savers have done.
We are dedicated to confidentiality, if you are managing or have fiduciary duties over a book of people’s savings, we will analyse that book on an anonymous basis and we will only share your data with you.
The big data set we are creating, based on 1m + ratings, is expected to swell beyond 5 million by the end of the year, we will share this big data with Big Government because we want people like Edwin Schooling Latter that the private sector can help and partly because we want to counter the negativity of many in influence who think that allowing people to see what they are buying – might do them harm.
We do not have to have a list of additives and their contribution to performance listed in large print on the label (the label would indeed need be too big). But we can find ways of letting this information be shared at point of sale in a conspicuous way.
PS20/02 fails to find that way, I blame myself. I should have responded vigorously to the consultation with an AgeWage solution that I am now clear about. All is not too late and if IGCs, trustees, providers and employers want to know how AgeWage can report to them on the impact of cost and charges , you need only mail me at firstname.lastname@example.org and we will analyse your data for free and deliver you an AgeWage report showing you what has actually happened with your savers.
I will also show you how we intend to develop our service to help the savers understand their workplace savings and compare them with savings in other pension pots.
If we can do it for baked beans – we can do it for pensions