Classical thinking on VFM is out of touch with what saver’s are actually interested in.

People’s Pensions report that more people are worried about the costs of their mortgages and bank accounts than their pensions. There are good reasons for this.

1. People pay bank and mortgage charges today, pension charges are paid out of the pensions received tomorrow. When you are struggling today, tomorrow takes second place.
2. People are broadly aware that charges on pensions are either paid for by someone else (DB) or are capped (DC). Frankly it is someone else’s job to make sure that charges are low – principally employers who pay charges for them
3. High charges, where they occur, seem to be welcomed by the wealthy who finds value in paying a lot of money for something.

This is not to devalue the work done on transparency in charges by organisations like Clear Glass, but this work is not for the retail market, it is for those charged with ensuring that people do not pay unnecessary fees for services that are either- over-priced or inefficiently delivered.

People are more interested in outcomes

Ask people how much pension they are going to get in retirement they will tell you that’s down to how much goes in and how much it grows by. Most people know that the earlier you contribute and the more you contribute , the more you get out. But they also know that not all pensions pay the same returns on their money and they know the value they get on their money is down to investment growth and the costs and charges they pay.

Most people would be surprised to know that an extra 1% pa charge on their interest would leave them 25% less well off over a lifetime. But that doesn’t stop them paying up to three times that on the management of their wealth.

SJP use a 2.3% pa charge to advertise their “value for money” relative to their peers!

And of course , if the charges generate better overall returns , they are justified on a value for money basis.

The trouble is that paying higher charges doesn’t necessarily lead to better value, which is why we cap charges at 0.75% while they are in workplace pensions. If you know your charges are capped, you should be more interested in the rate or return you are getting net of charges.

This is why the Government is more interested in valuing workplace pensions by net performance than by charges.

This is why the value for money agenda has shifted from measuring cost to measuring outcome. Responsible advisers, have picked up on this. Firms like Hymans Robertson and LCP are measuring value for money based on outcomes not on charges

LCP…recently revealed that only two-thirds of master trusts will deliver “moderate” outcomes for retirees, unearthing a 600 basis point difference between the returns generated by the top and bottom-performing master trust providers.

But while the industry pushes to compare costs and charges (typically against a favorable peer group or benchmark), the public’s attention is elsewhere.

What people really want to know.

What people really want to know is how their pension pots are doing , in terms of outcomes but the pensions industry (including People’s Pension) are reluctant to share the data of people’s actual experience. Instead they are hiding behind gnomic value for money statements produced by trustees and IGCs more interested in protecting the saver from any potential bad news story.

This is of course exactly why we need more transparency in financial services. Because if there are bad news stories or good news stories relating to our money, we need to know about them.

People are not stupid, they say pensions are complicated but they know that they could be simplified. People who try to simplify pensions are castigated by the pensions industry for sharing information that could lead to people making bad decisions.

It’s time we stopped talking about value in terms of costs and started telling people the real value they are getting from their savings – in terms of outcomes.

That means telling people how their pension pots have done and that is just what AgeWage intends to do. If you’d like to know more about our approach to valuing pension savings, please contact me for a call or a Zoom ( henry@agewage.com ).