Yesterday’s blog “The Simpler pension statement, more of the same I’m afraid“, anticipated the Government’s response its 2019 consultation on a simpler pension statement (and our comments on it).
The Pensions Minister is pretty bullish on these statements (though his social media team should check their spelling of drawer)
We are bringing pensions into the 21st century with Simpler Statements.
— Guy Opperman (@GuyOpperman) October 20, 2020
The FT’s Jo Cumbo was in no doubt about the headline feature of the response and she wasn’t so bullish. The statements (and by extension the pension dashboards) will not be showing costs and charges.
— Josephine Cumbo (@JosephineCumbo) October 19, 2020
If we were in doubt on her position , Jo quickly put us right
Just because they cannot directly control charges does not mean they are not interested in what they are paying, or unable to influence IGCs / Trustees to go harder on fee level and transparency.
— Josephine Cumbo (@JosephineCumbo) October 19, 2020
There are a few other matters of note
“Endorses” in this context means that the Government will eventually mandate their use as it finds the voluntary adoption of simpler statements too slow and coverage too patchy.
As well as dumbing down the disclosure of cost and charges, the Government has decided not to go with the distinctive orange envelope pioneered by the Swedish pension system (making the arrival of the statement an occasion) and is consulting further on a consultation season (so we get our pension statements in a short time-window – “consolidated statements = consolidated pensions?”.
But back to costs and charges
The new way of talking about costs and charges is like this
The old way was like this
To get to the cost of managing your money you are going to have to make a manual calculation using a link to another website. For 99/100 savers , the opportunity to ponder what the “-£1360” was about has been lost. Direct engagement in cost has been exchanged for a conflation of growth and costs “after charges, the investment of your plan has gone up…”. This of course assumes the investment has gone up, the investment has gone down in the last twelve months and we are due a few more bad years. The conflation of return and charges is confusing as we have no way of telling what was won/lost by the markets and lost through costs and charges. The conflated number is not a measure of value for money, it is a bugger’s mess.
Mis-management by committee
This diluted approach to disclosure results from a Government trying to please all sides. It is precisely the opposite of the hegemonic and didactic approach adopted by Martin Lewis who argues for clear meaningful statements.
There is a clear meaningful way to present cost and charges and that has been spurned, there is a clear meaningful way of presenting value for money, this has not been considered. We are left with an itemized pension statement missing the bill, not what Tesco’s Ruston Smith had in mind when he started working with Quietroom on this over three years ago.
The 66 respondents to the consultation have spawned a paper that runs to more than 10,000 words. The Pensions Minister has recently said that he considers this statement the “paper dashboard”, once again policy is dumbed down and the leadership shown by Ruston Smith replaced by the lobby of the providers
Too often calls for full transparency would simply turn people off. What percentage of people might like a simple pension statement? Lower than we’d like. What percentage would change their mind if the statement was full of charges and worse transaction cost info? A lot!
— Steven Cameron (@_StevenCameron) October 19, 2020
We need more than a tidy pension file…
I would have some sympathy for Steven Cameron’s position were the original conception to itemize the costs and charges – but that was not the conception as can be seen above. I would give weight to his argument (and that of Alastair McQueen) if they were putting forward an alternative means for us to engage with the value we get for their money (but they don’t).
The pension statement is the one document that we expect on our pensions each year. It is our five minute window to get involved and it must have one shirt-grabbing line to excite us! That shirt-grabber has been lost.
The loss is most important to the still sizeable proportion of pension savers who do not go on-line for their pensions information. Many pension statements will be delivered this year digitally but the Government is right to consider this statement is still normally delivered as a letter. People who open letters tend to file the contents and the file places one statement on top of another. Seventeen page statements don’t get filed – they get binned, two pages statements are file-able and comparable.
It is good that the Government is going to mandate a standardized template as we need to be able to read one statement against another consistently. Again thinking about filing makes this clearer.
It is good that we will be using standardised assumptions and I hope that the Government will standardise the delivery window so that there is one period in the year when we are thinking pensions. There needs to be a pension statement season.
Now we need to think about value and money in a way that allows us to work out how we want to go forwards. Most people , as they get into the later stages of their savings career will be getting multiple pension statements unless they find a way of bringing their pots together.
I call on providers such as Aegon and Aviva to consider what can grab our shirt-collars so that we do more than create a tidy pension file – we need a tidy pension pot from which to manage our spending!
We need a way to engage with the value we’re getting for our money
When we read the DWP’s detailed reasoning for rejecting the inclusion of costs and charges, we see the explicit concern about what a clear statement on costs and charges might mean
We continue to believe that costs and charges are an important driver of good outcomes for scheme members and we want to continue to support schemes in explaining the value they offer members in a simple and straightforward way. A pension should not be judged purely on cost, and other factors must be taken into account.
As I have mentioned many times on this blog, it is possible to standardise the presentation of value (just as we have standardized the presentation of cost). It means digging into the data of the individual member/policyholder and providing a score that expresses the value achieved for the money invested. This standard approach is based on well-understood metrics – the internal rate of return achieved , the average rate of return achieved for those contributions and a formula for comparison.
If the Government has closed the door on the simplest disclosure (price) then it must come up with a meaningful alternative. I will be writing to the Pensions Minister with a meaningful alternative.
A good wood for all the trees
I will wrap up by applauding the persistence of Ruston Smith , Quietroom and all who have worked on the simplified pension statement over the past three years. It is a fine thing to save trees (as Pension Bee remind us) It is a fine thing for us to see so much on two pages and it is great to have standard assumptions that make much of the statement meaningful.
My strength of my criticism is based on my evangelical zeal to make information presented to savers meaningful and this is born out of my realization that the five minutes spent on a pensions statement may be the one chance each year the saver has to engage with his affairs.
If we don’t use costs and charges as the hook, we need to find an alternative and better hook. I have spent the past few years thinking about what that hook might be and please excuse me for repeating what I have said so many times before, WE NEED TO GIVE PEOPLE THE VALUE THEY HAVE GOT FOR THE MONEY THEY HAVE SAVED.