As regular readers will know, I campaign for better information to be made available to savers about their pension pots and to help people understand their pot, have formed a company, AgeWage. AgeWage.com helps people make sense of their pots and take decisions to convert pots into retirement plans.
To do this we have devised a way of using your data, specifically the value of your pension pot and the money that you contributed, to provide you with a score that told you how you have done against the ordinary saver. The result is the AgeWage score and we have produced over one million scores for organisations like your employer, your provider or the people who oversee pensions – trustees and Governance Committees.
How to use your AgeWage score
The AgeWage score is a way of telling how your pension has done and if we believe in history, there’s a lot to be said for following the winners.
But our score won’t tell you what will happen in the future and there are reasons why your pension may have given you value for money, even if you got a low AgeWage score and there are reasons why a high score may not mean your pension will give you value for money in the future.
AgeWage will help you find your pensions, help you measure how they have done and organise your pots on a dashboard so you can work out what to do next.
In this blog we explain the limitations of any scoring system and offer some guidance as to how to get the most out of the analysis that has been carried out by AgeWage
Five reasons why high AgeWage scores may not predict good times ahead.
- You have been saving and in the future you will be spending, if you are planning to spend your pot using draw-down, then you need to make sure your pension fund is still suitable for your changing circumstances.
- You may have got that high score by taking risks you did not want to take. You should check with your provider how your money has been invested and make sure you weren’t getting lucky backing long-shots
- You may have got lucky with your investment timing – especially if you were just investing lump sums. Have a look at your contributions and if they were erratic , speak to AgeWage who whether you got lucky with your timing.
- You may have enjoyed the benefit of a star investment manager, that manager may have changed and the fund may not do as well in future.
- The world is changing, there are many investment trends today, especially to do with environmental, social and governance issues that your fund may be ignoring – your fund may be complacent – make sure you aren’t.
Five reasons why low AgeWage scores may not mean you did that badly
- You may have enjoyed during your time saving protection that was paid for from your fund. Examples are life cover and “waiver of premium”, where your contributions were insured by your provider should you go sick
- You may have safeguarded benefits in the future, benefits like a guarantee on your annuity rate or a bonus paid at the end of your savings period. These benefits will have been paid for from your fund and mean that you pot may be worth more in the future
- You may have financial advice paid for from your pot. This may mean that your pot under-performed but it may not mean you got bad value for money. The value of the advice may have compensated for the lower performance and you may consider you still got overall value for money
- You may have been paying for reduced risk. Even though you might now wish you hadn’t, you may have sacrificed part of your return to get a smoother investment ride.
- Your return may be being smoothed. If you are in a with-profits fund, you may not be getting the whole investment return you have earned, especially if we are now in a good period for investment returns. Some of the return may be fed back into the pot if we have bad times ahead.
And what about the quality of your service?
For most of your time saving , you may not have noticed the service you got, this is probably a good thing as we generally notice poor service but not good! But quality of service can have a positive effect on your saving, especially if you are nudged into taking good decisions by a good provider.
We cannot tell if you have had good service from your provider but the AgeWage analysis can pick up if something has gone wrong. Typically we can see if there’s a big difference between how you’ve done and how the average person did.
That difference may mean your data may be suspect and we will flag this with you , telling you your score looks unreliable. In such a case you may want to get your provider to look into your data to make sure they haven’t made a mistake. Data mistakes are bad news and a sign of poor value of service.
On a more positive note, to have produced a score means we have had some co-operation. We will be producing a league table that shows which providers have shown us most co-operation and which have consistently obstructed you. We will be collating information which we will feed back to IGCs , Trustees and Regulators. Our experience of provider service will also be shared with savers using the AgeWage test (available at http://www.agewage.com).
What we do for our test group cannot be used as a proxy for quality of service overall but for the test group if is their quality of service and informs on their view of value for money.
We’re all different, for some people quality of service will be unimportant , for other’s it may be as important as the AgeWage score. We know all too well from current events, how trying to mark individual performance with a one size fits all approach – can prove disastrous.
However, we think that in the longer term, a measurement of value for money will emerge which will take feeds from a variety of sources, including Trust Pilot, net promoter scores, internal reporting against service level agreements, call answering times and turnaround of member data requests.
Much of this information is available in IGC and Trustee reports, but – other than in my limited survey of IGCs and similar from Share Action , there is precious little collation of the findings of the fiduciaries.
Once such a measure has been devised, it can be standardized and applied across all DC providers. I would hope that a league table will be created to ensure that people can compare their experience with that of others and come to their own conclusions about the quality of service they are receiving.
For now, our limited feedback is the best you can get. We recognize that it is incomplete, but we are mid-way through the journey. We have a way to go till we have a standard approach , indeed a VFM Standard.
Choosing your investment pathway
The AgeWage score is primarily about helping people understand their saving for retirement. When people get to the point where they want to start spending their money, they are faced with choices
- Should I convert to a pension and buy a wage for life type annuity?
- Should I leave my pension pot to my family and rely on other income?
- Should I draw-down from my pot and create a DIY pension?
- Should I take all the money as cash?
If you decide to use options 2 or 3 either for all or a part of your savings then you need to ask yourself why it is that you got a good or bad score and if you feel comfortable that the score is telling you , you have value for money, then you should be using pots with high AgeWage score for your investment pathway.
If you want to buy an annuity or take your money as cash then the AgeWage score is of little use to you in this decision.
The AgeWage default provider
As a rule of thumb, the more interaction you have with your pension provider, the more important Quality of Service is to you. In our opinion , Pension Bee offer outstanding Quality of Service and we promote them both for the high AgeWage scores that their savers get and for the customer experience their Beekeepers give. We use Pension Bee as a default investment pathway, where you feel dissatisfied with your existing provider.
It may be that in time , others pension providers will match or even surpass Pension Bee, but we think it is important – to simplify matters – to offer a default provider going forward and that provider is currently Pension Bee.
- AgeWage scores offer you an insight into how your pension has done and allow you to make comparisons with other experiences (including those of your other pots)
- Sometimes a low score can predict good outcomes to come
- Sometimes a high score can predict bad outcomes to come
- But generally the higher the score, the more value you’ve got from your pension
While you should not rely on your AgeWage score as advice on what to do in the future, it can inform your decision making and we hope it gets you thinking about what to do next
As for your overall estimated of value for money, that is for you to decide, based not just on your view of the score , but on your view of the quality of service you receive from your provider.
Finally, the decision you take in the future is a difficult one and ,unless you outsource it to a financial advisor, it’s one you have to take for yourself. AgeWage will give you access to a good quality source of advice from the Better Retirement Group, a good quality annuity broker in Retirement Line, access to a cash-flow modelling service from Retirement Easy and a default Pension Provider in Pension Bee.
If you would like to test AgeWage while we are in the FCA sandbox, you can do so for free and without obligation.