Jo Cumbo and the FT are road testing the Government’s new pensions comparison site which helps people select a later life provider to pay them their money back via the four investment pathways.
The worry for Jo and it’s a worry for Ros Altmann too, is that incomplete choice devalues the comparison site and that a whole of market comparison is needed.
There are two reasons I don’t agree with this argument
- You will never get a whole of market comparison, some providers prefer not to participate and some providers fail the comparison site’s due diligence.
- The basis of comparison on offer (price) is problematic, a whole of market view gives people a false sense of supremacy.
Whole of market?
The FT are calling the FCA/MaPS service a price comparison site.
The provider’s perspective
Watch this video and you’ll see that that price’s exactly what MaPs highlight.
Where the basis of choice is “cost” then providers can legitimately ask what chance they have to demonstrate “value” . And the FT points our that cost comparisons are not consistent anyway.
MaPS conceded that the comparison may not be like-for-like, as some providers were not required to use FCA assumptions
It is not surprising that some providers are reluctant to feature on a site where the measure of success is so blunt, frankly presence on the site could be a tacit endorsement that price is the only thing that matters.
The user’s perspective
We all use price comparisons and know that certain companies won’t be featured, this happens when comparing flights, hotels and insurance. We know that companies such as Direct line and Easyjet prefer to market direct to the consumer rather than commercial platforms and that is their right.
As users of (for example) a Royal London workplace pension, we may be find our provider isn’t featured on the page but we should not be surprised. There is no mandating participation (as there will be on the Pensions Dashboard); nor should there be. Organizations participating are touting for business in a specific market – the non-advised market. We won’t get Royal London, or SJP or Open Money advertising for non-advised business because they have an “advised” proposition. This nuance is difficult for a price comparison to explain and MaPS, properly, don’t try. It seems that at least one provider who wanted to be on the site ( LV=) didn’t make it and it seems that MaPS did exclude some providers who applied as non-eligible, that is its right.
It may be helpful for consumers to know why their provider isn’t featured, but that is for the provider to explain, not the MaPS website. Bizarrely, the FT’s list of household names not included mentions a firm called “Willis Owen” (who they?) but not SJP. Once you start down the inclusion route , you recognize how easy it is to exclude. Firms like Aegon, Vanguard and Prudential are singled out by the FT Vanguard’s was set up exclusively to oversee these investment pathways, I was informed by its IGC chair that as at January, Vanguard administers 7 policies in drawdown. Is such an immature proposition ready for this site?
Consumers – it’s assumed – need to know everything because a little knowledge is a dangerous thing. We get the same argument around the Dashboard Availability Point. But consumers neither get, nor expect to get – “everything” from a price comparison site. Ros Altmann should be particularly aware of this from her time as CEO of Saga.
A proper basis of comparison
The provider’s perspective.
Just how unimportant “value” is to the MaPS website can be measured by the pathetic attempts to measure it. I have written about this recently. Providers are given a few words of “free text” to explain their drawdown value proposition and come up with the kind of gibberish that earns a tick from the regulator but none from Quietroom who thanked me for reading them (so they didn’t have to).
I decided to road-test the drawdown option with Fidelity, one provider I hadn’t previously looked at and the most expensive of the drawdown providers I was offered. My aim was to look beyond the price and find out what value I was getting, I can honestly say that after 90 minutes of research I was none the wiser.
The value proposition followed the gibberish I’d found for every other provider
This tells me nothing so I pressed on the link to the provider’s website where I discovered this further information.
The strategy repeats the value proposition on MaPS site, the rest of the information doesn’t help me any. the 0.4% charge when applied to my fund , gives me an annual cost of £1500. This compares to the disclosed charge on the MaPS site of £2571.20 so this information is not just unhelpful , it is entirely inconsistent and potentially misleading.
Then we have the “other things to consider” box. If I was Kim Nash, Chair of the Fidelity Independence Governance Committee, I would be beating a path to Fidelity website’s manager to ask
- Why investor’s aren’t being asked to think about whether the fund if invested responsibly
- What steps Fidelity are taking to dampen down the risks of money running out through poor performance of sequencing risk.
- What has happened to investors using this fund in a Fidelity policy over the past few years
This Independent Governance Committee is referenced on the MaPS site, so I reminded myself what the IGCs terms of reference says about investment pathways. I discovered that the IGC has general responsibility for
whether communications to Relevant Policyholders are fit for purpose and properly take into account the Relevant Policyholders’ characteristics, needs and objectives
and specifically
whether communications Pathway Investors are fit for purpose and properly take into account the Pathway Investors’ characteristics, needs and objectives.
I see no evidence that Fidelity’s investment pathway for non-advised drawdown customers is fit for purpose or that it takes into account the characteristics of people considering making their money matter. I have no idea what the “Multi-Asset Balanced Income” is and what any of those four words mean to me. I am simply asked to take it on trust that Fidelity are going to meet my “needs and objectives”.
The objection that I have to the MaPS comparison site is that it knows the price of everything and the value of nothing. This quite outweighs the negative impact of provider exclusion.
A better way?
We have to accept that until something better comes along (perhaps CDC) the investment pathways are the best hope for the non-advised who want to drawdown, buy an annuity, cash out or leave their money alone for now.
Price of following these options is important, especially the investment options where the cost is not clearly in the rate (as it is in annuities). But people buy on value for money and not just on the “price per 100cl” on the supermarket shelf. We will pay more for a good product and avoid rubbish, however cheap it is – once identified as rubbish. We shop at stores where we won’t find rubbish and trust supermarket buyers to do that due diligence for us.
A better way for MaPS to go, is to find a common definition of value for money that works for the consumer. This means more than price, it means looking at the past and potential outcomes of drawdown using historic data as well as future assumptions. We need to look at measures such as “value for risk taken” and publish the information that data analysis gives us. That should be what IGCs and GAAs are doing right now.
We also need to give people access to information that explains where their money is invested and what measures are taken by the provider to improve the fund’s contribution to ESG factors (what makes our money matter).
This is important, the investment of our pension pot – whether in cash , annuity , drawdown or for inheritance is one of the biggest financial decisions we will take. We can’t all be money experts, we need real help and I mean the kind of information that allows us take information independently of advisers.
Of course “advice is best” but advice is not generally available and affordable to most people and there are many people who just don’t want to talk to a financial adviser , even when the adviser wants to talk with them!
The MaPs site is a good start but it is let down by feeble contributions from providers who have clearly given up on their value proposition and given in to “price” being the determinate of value. This is pathetic and lazy and this blog calls on the IGCs and GAAs to set about their providers and demand better.
We can and should build better than we have done in the past.
