## Pension savers -“What’s the value of your money?”

This was the first AgeWage blog published 2 years ago, it’s good to see we haven’t changed our purpose and direction!

There’s a lot of argument amongst pension experts about what value for money actually means.

Here’s the provisional result of a poll we are doing on  Facebook this week

We don’t think there should be any argument, the only “value for money” that counts is “value for my money”

So general statements about policyholder or members getting “value for money” are -non-specific and not that helpful.

So how does someone go about finding out the value they’ve got for their money? Pretty simple really!

The money is the amount of money that is paid into someone’s pension pot. So to tell you that , someone needs to know what you paid into the pot, when and what the pot’s worth now. The calculation’s known as an internal rate of return and is the value you’ve got for your money. Typically it will be in a range of 5-10% pa but it could be a lot higher or lower than that.

But that percentage doesn’t mean much unless you’ve got something to compare it with. You’ve got 6% value for money isn’t much good.

Now while i can imagine that a really clever mathematician could do a DIY internal rate of return, I defy anyone to fin out how well their money did against an average. That’s because no- one has (yet) come up with an average fund and even if they had, it would be fiendishly hard to work out what you’d have got if you’d invested in the average.

But if it were possible to create an average fund with a price for every day you invested , then it would be possible to compare how your did (your internal rate of return) with how the average person would have done , if they’d contributed the same amounts on the same days as you did.

Which brings us to the point in the conversation where AgeWage come in! What we do is take your contribution history and compare what it got you with what an average person would have got investing in the typical fund.

And to make things nice and simple, we turn the comparison into a score – we call the AgeWage score. The score is out of of 100 and the higher you score , the better you’ve done/

If you’ve beaten the average person you are “top half” and score 50+, if you’ve lost you score 50- and of course you could be average and score 50!

## WHAT’S THE POINT?

You may ask yourself why these pension geeks are going to so much trouble to tell me how I’ve done?

If you’re one of the 94 people out of 100 who’s never gone into this , you are probably going to stay that way- but maybe not! Perhaps 5  maybe another 10 or so people who found pensions too hard, will look at that AgeWage value for money score and say “you know what, I’d like to find out how they got to that score” or “perhaps I should get scores for my other pension pots” or “ if I compared all my scores” perhaps I could work out what to do next.

So the point is that some people (perhaps you) are bothered enough to use AgeWage scores as the setting out point for a deeper exploration of their pension pots.

And if we can get 5 or 10 more people in a hundred into thinking they can do pensions , then perhaps we’ll have moved the cheese a little bit words where is should be on the board!

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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### 1 Response to Pension savers -“What’s the value of your money?”

1. Peter Tompkins says:

This is all right in terms of what value I have got for my money. The secondary question however is “who has caused this value to come from my money”. And there are probably three main components

– what I chose to do myself (eg which funds did I choose to stick it in)
– what the provider did with my instructions (their skill if it’s an active fund and their charging structures)
– how the markets we chose to be in performed

The challenge I see is to distinguish these three. Or more particularly to identify the middle component – what is the provider giving me in terms of its value (added or subtracted).

The AgeWage score is one step along the road – showing the overall value of the saving commitment. But it then needs to be interpreted in the context of who took the choices. So if the investor stuck it all in cash and got a lousy return it shouldn’t then be rational for them to take the money away to another provider and do the same thing all over again.