VFM – the Pension Policy Institute spells out what really matters

A new report which will be published today, reinforces many of the messages of this blog. I am reporting the trailer and this blog will be updated later in the day. The report sets out to show that

“International Value for Money approaches provide
useful lessons for the most effective way to target a UK
strategy”

The PPI is asking  in its title “What can other countries teach the UK about measuring Value for Money in pension schemes?

Authored by Nick Hurman, a PPI Research Associate, the report provides an international perspective to the current UK debate around the definition of Value for Money (VFM) in pensions.

It reviews recent developments in five other countries: New Zealand; The Netherlands; Australia; Sweden; The US and considers how these might relate to a UK VFM framework. The different approaches that countries have taken to providing Value for Money in pension schemes has allowed the PPI  to draw out useful lessons for the most effective way to target a UK Value for Money strategy.

The PPI concludes that  the key elements of infrastructure which support Value for Money
frameworks internationally include: consensus between all relevant parties (for example, Government, industry and employers); clear, measurable standards and benchmarks for performance; and, publicly available comparative data.”

In relation to scheme behavior, the PPI found that consistently positive, real investment returns, generated the most significant Value for Money outcomes, though retirement income levels are most influenced ultimately by the level of contributions members and their employers make.

In relation to external factors, its research found that increases in scheme size have a positive impact on Value for Money, this scale effect can diminish once schemes reach a certain size, though as schemes grow, they gain access to a wider range of investment opportunities.

And underlying all of these factors the PPI report emphasizes the need for good governance which sets and monitors the delivery of services to schemes and their members.

These findings suggest that a UK Value for Money framework could include an
overarching focus on governance and the way it relates to: investment performance,
member engagement; administration; and, costs and charges.

This report reinforces key messages  from the Pension Regulator and FCA’s recent discussion paper on establishing a Value for Money framework in the UK. It also supports the approach of the DWP to value assessments for DC schemes considering whether to consolidate into multi-employer schemes and it has important implications for the small pots consolidation program, where both at an individual and scheme level, the need to combine pots is becoming urgent.

 

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions. Bookmark the permalink.

2 Responses to VFM – the Pension Policy Institute spells out what really matters

  1. Adrian Boulding says:

    We can sum up the order of importance then as
    1. Contributions
    2. Investment Return
    3. Charges
    As an actuary I agree with that

    Adrian

    • henry tapper says:

      Having just heard you speak on this subject- I don’t think that 1 is anything to do with VFM but a key driver to outcomes. Maybe we should redefine money as ‘contributions’

Leave a Reply