Two dates for my diary from the FCA yesterday
On September 16th , the FCA and TPR will be publishing a joint discussion paper on the measurement of value for money.
On October 4th, the FCA will be publishing a policy statement following the consultations over the ongoing role of IGCs and their role.
This news is important as it allows the debate on scheme consolidation and member choice to move on. Two out of the three (the third being CDC) pension initiatives underway right now, depend on measuring the value of what members of pension schemes get. These papers are critical in finding our way towards a workable system where employers and savers can make informed choices about the direction of contributions and the means by which pots are turned into pensions. If consolidation leads to collectivisation, the Government will have pulled of a notable hat-trick.
Dogs and Alpacas
In yesterday’s blog, I compared the conversations going on in the UK and Australia about the measurement and benchmarking of Australian Supers and UK workplace pensions.
As a senior policy adviser characterized things yesterday
“it depends if you look through the provider’s end of the telescope or the saver’s”.
While the regulators have a job to protect and sustain good quality pension provision, they equally have a job to call out bad practice and name and shame failing schemes. This is what is happening in Australia, but it is not happening in the UK where the FCA recently withdrew its threat to name so-called “dog funds”, presumably in the interests of dog preservation. Perhaps we should call these products “alpacas”.
Certainly , we should not be prolonging the lifespan of failing funds or schemes and should be issuing those with licence to invest our money to shape up or shape out as the Australians are doing. I discussed this with the FCA, it is important that we not only know what other regulators are doing , but learn from them. Australian regulators can teach us a lot – look at the success of the Super system (with all its shortcomings). This is what you get from the APRA if you are failing.
Time for a proper debate about value
As workplace pensions grow and rights to occupational DB schemes diminish, the issues around savings levels, the investment of savings and the conversion of pension pots into pensions become more important. It was pleasing to see IFAs and actuaries engaged in a coherent and peaceful debate about CDC as a means of turning pots into pensions (see here).
While the FCA are keen that the markets come up with solutions to issues such as what pots to keep and what to combine, it is clear that this is not happening at anything like the rate needed to maximise member outcomes. People need a clear indicator of where they are getting value and where they are not. This goes for employers too.
The quote comes from the 2014 OFT study that led to the formation of IGCs. In my opinion, IGCs have quite failed to answer the question “is my workplace pension giving me value for money” as they haven’t addressed the question “compared with what?”.
Is there a measurable comparator? Is it Nest – the Government’s own workplace scheme? Or is there an index ? Morningstar have an index that tracks the performance of the average workplace pension fund – why is no one using it?
And why is there no standard in place- for which the public can place some trust? The British Standards Institute has expressed an interest in standardizing a common definition of value for money. Why does the debate not include BSI and the UK Accreditation service?
Widening the debate
Right now, the debate over value is confined to a small coterie of consultants for whom the debate matters both intellectually and commercially. Frankly it is a debate that they would like to control and they have no interest in widening the debate beyond its current narrow confines.
But the question of what we value in pensions is one for everyone, as everyone has a pension pot and we will all get a pension (if only from the State).
My hope that the FCA/TPR Discussion Paper will spark some debate beyond the cloisters and will include a vigorous conversation about what pension saving is for. Clearly that is what Boris Johnson and Rishi Sunak want – having issued their challenge to the pension industry for an investment big bang and it’s what many honing in on the point when they want or have to stop work – want to. They want to know how these pension pots convert to financial security in retirement.
The starting pistol for the great debate on value for money is fired on 16th September. So let’s prepare for 3 months (the apparent discussion period from 16th September) by sharpening our tongues , pens and thinking.
Footnote on animal welfare
Some readers may be offended by comments on dogs and alpacas. I’d point them to a good piece in the Spectator. For me, it’s human interest third, animal interest second.