Romi Savova

A few weeks back, the Money and Pension Service(MaPS) published a comparison site to help people choose an investment pathway and then decide the best products to use when they’ve made the choice.

Confusingly , the URL for the site is

https://www.moneyadviceservice.org.uk/en/tools/drawdown-investment-pathways

which is quite separate from

https://moneyandpensionsservice.org.uk/

which is the MaPS website. This is not the only thing that people are finding confusing about the site.

I understand that MaPS has developed this service for the FCA and that it’s there for you if  you want to

• shop around for drawdown products that offer ready-made investment pathway options
• compare how much they cost in yearly charges
• compare how the pension providers will invest your money as this will vary

At launch, I blogged about the service , praising the look and feel of the service but questioning much of the detail which I found confusing. I was also disappointed that a Government comparison tool did not consider provider’s position on responsible investments. It turns out  I was not alone

One of the providers of drawdown products is Pension Bee. I spoke yesterday with founder Romi Savova who I met outside on the Barbican High Walk. As we took some morning exercise we discussed how difficult it is to use the MaPS service and how concepts such as investment, yearly charges and pensions are debased by sloppy and imprecise information which isn’t fit for the purposes set out above.

Romi has written a letter to MaPS to which as yet she’s had no reply. I include the letter and the appendices are included at the end of this article. After the letter, I have added a suggestion that MaPS like to consider. It is important that MaPs takes note of Romi’s comments and considers ways to help people that provide better guidance.

Dear Ms Siarkiewicz,

I am writing to express my concerns regarding the implementation of investment pathways and the recently launched MaPS drawdown price comparison tool. I fear the industry’s implementation will not assist consumers in making better choices for their retirement and needs urgent further work.

I am particularly concerned that the MAPS comparison tool is highly misleading and not fit for purpose.

Who is offering investment pathways and where are they?

The objectives of investment pathways is to help consumers make better decisions about
what to do with their pensions at retirement.

It is incredibly difficult for consumers to do this unless they know who is offering investment pathways. The MaPS tool is supposed to help consumers understand what is available to them. It is wholly unacceptable that the investment pathways of major providers still do not appear on the tool despite a month passing since its launch.
Providers conspicuously missing include:
● AJ Bell
● LV=
● Old Mutual
● Vanguard

Participation in the tool should not be optional when it was created for the sole purpose of
understanding and comparing investment pathway options, which became compulsory on
for all pension providers offering non-advised drawdown products.

As you are aware, investment pathways were introduced to “make the cost of drawdown
products clearer and more comparable for consumers”  (1), so it is incomprehensible that some of the pensions industry’s biggest providers be allowed to voluntarily exclude themselves.

Of the excluded providers, we were unable to find the total charge information for LV= and Old Mutual despite several searches on their websites.

A hodgepodge of different products

Of the products that have been included in the tool, MaPS has taken the unfortunate
decision to display incomparable products side by side in a way that suggests they should be compared.

MaPS appears to have taken its old annuity comparison tool, which compared a like-for-like product, and rehashed it for investment pathways in a way that is now not fit for purpose.

While we recognise that there are thousands of products in the market that could meet the criteria for the tool, and it is difficult to rank incomparable products by anything but charges, the decision to obfuscate other important features could be extremely damaging for consumers.

While this concern applies to all pathways, it is most clear in Pathway 3.

Pathway 3
The purpose of Investment Pathway 3 is to help savers make regular withdrawals without running out of money. The objective states: “I plan to start taking a long-term income within 5 years.”

A look at the options available for this pathway (on and off the MaPS tool) demonstrates two approaches to meeting the investment requirements of this pathway.

One approach focuses on target returns, which aim to generate a more predictable income from the fund.

Examples of providers who have taken this approach include: – PensionBee’s 4Plus Plan actively manages the underlying (passive) investments,
targeting a return >4% over a 5 year period. 4% is widely accepted as the
sustainable withdrawal rate for regular drawdown.

• A J Bell is also targeting 4% annual returns (albeit this product is not on the tool)

• Hargreaves Lansdown is targeting a return of 3%

• Fidelity is targeting a wider ranging return of 3-5%

See further information in the Appendix.

Other providers seem to have taken an asset allocation approach, increasing the exposure to bonds. There are no target returns, especially where the products are passive, and the money manager has limited control.

We found it exceptionally difficult to compare what is “under the hood” for each product and believe any reasonable consumer would too.

Compounding this difficulty was the fact that it seems to be a herculean task to find the factsheets of the underlying products on each provider’s website. Despite several attempts we could not find the factsheets for Standard Life or the appropriate product for Scottish Widows ‘Pension Portfolio 4’, which returns a range of options on their website [see appendix 5].

We believe it is the responsibility of the tool to ensure the factsheets are easily available for consumers.

Similarly for Option 4, some providers have suggested consumers should avoid investing altogether, keeping their money in cash instead. The cost of this is presented as £0, but of

course the real returns of this product are most likely to be negative owing to inflation.
These are just some of the examples in the tool that indicate it is grossly optimistic to expect a consumer to be able to evaluate whether a product is good or even comparable, relative to the other available options.

The tool is subject to manipulation
The approach to the tool’s design leaves it subject to provider manipulation.Since PensionBee’s inception we have vocally campaigned for transparency on charges in
the pensions industry. We help consumers see the charges they would pay for each of our plans (relative to pot size) in pounds and percentages on our website, and PensionBee was the first provider in the country to issue a Simpler Annual Statement showing pounds and pence charging in April of last year.

Showing costs in a format consumers can easily understand is an essential part of engaging consumers and empowering them to compare charges. However the manner that MaPS has chosen to use charge information in the tool could encourage providers to place inappropriate products under the hood of each pathway simply to rank better.

Without sufficient consideration in the tool given to target returns, past performance, ability to make small withdrawals to keep more of one’s pension invested, the availability of planning tools to encourage positive behaviours and so on, consumers are left to compare apples and oranges.

Next steps
We encourage you to take a strong stance on the missing providers. Consumers deserve a tool that offers a representative market comparison of their available options. We further encourage you to address what appears to be a negligent approach to avoiding comparisons between important product features.

We encourage you to improve the tool urgently. The tool represents a moral hazard for
providers seeking to game the system to the detriment of transparency and consumer
outcomes.

Kind regards,

Romi Savova
Chief Executive Officer of PensionBee

(1) https://www.fca.org.uk/publications/policy-statements/ps19-21-retirement-outcomes-reviewfeedback-cp19-5

A way forward for MaPS

We have a way forward for MaPS and it is very simple. It involvs road testing the products put forward on the site , much as you’d road test a car.

As is the way of mine and my company, AgeWage, I would like to be open about our approach and to leave it for you to comment on its merits.

What can be done, and done quickly , accurately and inexpensively , is to obtain the daily prices of the drawdown solutions being offered, details of all charges not in the price .

We will then run  road tests for all strategies against a test group of anonymous users , whose drawdown histories will be drawn at random from our data sets (we have 2 million such sets)

My organisation will then analyse the rates of return achieved using these strategies and compare them to an appropriate benchmark based on the average strategy. This benchmark can be agreed with MaPS and it will allow all drawdown strategies to be scored based on how they have done against the average and against each other.

This very transparent road test will be repeated at regular intervals so that the progress of these strategies can be monitored over time. 

People going to the tool will be able to see the results of the road-testing – either in a league table and/or as individual scores attached to each provider’s product. 

Once this basic road-test was in place, a more sophisticated road test could be carried out to look at the amount of risk taken by each strategy. This would be akin to a second road test, but this time on the skid-pan, establishing how robust drawdown strategies were in times of financial stress.

We would be very happy to discuss how this would work as a pilot.  

Appendices from Pension Bee included in letter to MaPS