There is a lot wrong with this article, but one thing that is right is that performance matters and matters to the people who are using workplace pensions. If it didn’t matter, the Mail would not publish articles like this, the Daily Mail knows what people are interested in.
What is right about this article is that it tells people that how much they have in their pension pot is not just down to how much they put in (the traditional equation put forward by the financial services industry) but how much the fund they are in – has made them. The “one size fits all” pension is what pension people call the “default option” and people might think that it is a kind of standardised fund that gives everyone roughly the same outcome.
These one size fits all funds are a “lottery”
More than two million people whose employer uses the default fund from Now: Pensions, the third-largest provider in Britain, have been the biggest losers.
Their pension lost 19.2 per cent in the 12 months to September, after fees, meaning nearly a fifth of its value has been wiped.
Someone with £50,000 in the Now: Pensions fund would be £9,600 worse off as a result, leaving them with just £40,400 if they made no new contributions.
Savers whose company uses the Scottish Widows default fund have lost 14.2 per cent, or £7,100, from a £50,000 pot.
So lucky you , if you’ve been saving with Scottish Widows, well not quite – you’ve lost £7,100 of your £50,000, most probably rather more than you’d put in. I’ll come back to the in’s and out’s in a moment. Read on…
And five million people with the People’s Pension’s default fund are down 12.3 per cent — a fall of £6,150 — leaving them with £43,850.
By contrast, Aon’s default pension fund has lost just 4 per cent — £2,000 on a £50,000 pot.
This means that two workers on the same salary could be £7,600 better or worse off over the past year, depending on their employer’s choice of pension.
By the time you read that final paragraph, you should be alarmed for two reasons. Here are the questions I’m asking as an expert, questions that can’t be articulated by ordinary savers because they do not have a proper way of measuring value for money.
- Why are standardised default options producing such different results?
- Where are these numbers coming from and how are they calculated?
We are given no reason for NOW doing badly and Aon doing well. To use the technical phrase, there is no “attribution”. NOW’s spokesperson didn’t explain what had hurt their “one size fits all” fund, nor did Aon’s. Despite this, Aon’s master trust CEO Tony Pugh has been keen to promote this article.
The two questions are really one question
Why is nobody talking about the value we get from workplace pensions in a grown up way?
As for the ” Money Mail investigation” , there is no evidence of where these numbers came from , on what basis they were calculated of whose experience they represent.
We are told that they represent numbers for someone on a £50,000 salary but what’s the relevance of that. They are based on a £50,000 pot , presumably one that has no money paid into it for the past year, but is this a pot that belongs to someone close to retirement or some way out? All we know is that they are calculated for a 12 month period to some date in September and they are “net of fees”.
In the case of Scottish Widows, we don’t even get told whether these numbers relate to their master trust or GPP.
Frankly, the quality of debate that follows the publication of the numbers is pretty poor withy providers wheeling out platitudinous statements with regards investments rising and falling that tell savers nothing.
Emma Matthews, of Now: Pensions, says: ‘Investments go up and down, so every saver should be prepared to see fluctuation in the value of their pot. Our default fund has recovered from the wider market turmoil.’
A spokesman for People’s Partnership, provider of The People’s Pension, says: ‘These September figures reflect the very poor market conditions which impacted every retirement saver in some way.
‘Since then, there has been a recovery in the markets and our investment performance has improved significantly.’
Scottish Widows says: ‘There will always be volatility, which causes markets to fall. But our experience shows us that it usually recovers in the long run.’
All three of these statements tell us nothing specific about why these default investments have under-delivered, it’s “get what you’ve been given” time.
Worse is to come.
Having set hares running in part one of the “Money Mail investigation”, things go from bad to worse. We learn that
Around 850,000 workers have lost an average 32 per cent this year in so-called ‘lifestyling’ bond funds that reduce the threat of a stock-market shock as they approach retirement
Has your pension lost a fifth of its value? No it’s down a third!
I do not recognise this 32% figure. It doesn’t fit in with what we’ve heard in part one of the article and it doesn’t relate to the internal rates of return I’ve calculated for anyone in the latter stages of “lifestyling” in the millions of workplace pensions AgeWage has analysed this year.
It tells us that a huge number of savers, with least opportunity to make this money up, have lost a third of their retirement savings, just by being in the wrong fund at the wrong time. This is confirmed by a SIPP provider – AJ Bell
More than £4.5 billion has been wiped from the value of older workers’ pensions as an estimated £15 billion in workplace pensions was invested in these funds last November, according to A.J. Bell.
Dan Mikulskis of LCP tells readers:
‘Choose a fund that’s right for you and stick with it — all funds go through periods of bad performance.’
If the last year you save for your retirement leaves your pot on average 32% down, there’s nowhere left for you to go. Exercise your right to tax free cash and enter drawdown and that loss of 32% is permanent.
So if this is the true cost of the spike in gilt yields on worker’s pensions, then we need some better evidence than what the Mail is giving us. This is true scare-mongering and irresponsible journalism. Frightening people who understand little about the way their money is invested with the prospect of their having lost a third of their retirement savings is not right.
Creating financial literacy?
We talk a lot about “educating” the public about pensions, using words like “literacy” and “learning”. But when it comes to giving people real information about what has happened to their money, we tell people nothing.
There are reasons why Aon has done better than NOW, but savers have no way to compare the two. Savers who have been abandoned to the gilt market through neglected lifestyle plans have no explanation for their loss.
Pension communication teams agonise over how to engage us to save more into their plans while savers discover that their savings are left to a “lottery”.
It is left to journalists to feed off this information gap and produce terrifying articles like this one , to which pension providers have nothing to add but platitudes.
Where is the voice of the Trustee, whose job it is to protect members, where is the IGC for that matter? Instead of factual information we are fobbed off with bland platitudes.
SIPP providers are allowed to make dangerous allegations about lifestyling (something you don’t find in a workplace pension), which serves only to promote the non-workplace SIPP over the workplace pension. Once again, a mainstream journalist quotes numbers without context and with no seeming intent other than to frighten.
Performance matters, and experienced performance matters a lot. The impact of investment performance on a member’s pot is what “value” is all about. All the fancy stuff around digital information doesn’t matter jack-shit compared with the amount of money in the pot.
Workplace Pension Providers complain that employers buy their services on price, but if they haven’t got the balls to put out real information that savers are getting from their money, then who can blame them?
This is where we get to , when employers buy pensions on price not value. This is where we get to when providers give up on telling savers how they are doing. This is where we get to when we have no standard measure for value for money.
Aon seem happy to promote this article because it promotes its master trust. That is wrong. Workplace pensions need to properly explain their value for money , not promote irresponsible journalism like this.