“What is important to me is that when you’re saving into a retirement pension, your money is working for you” – Laura Trott, Minister for Pensions, announced a series of private pension reforms at @ThePLSA yesterday to boost fairness, adequacy and predictability for savers pic.twitter.com/JnHpdXJlAK
— Department for Work and Pensions (@DWPgovuk) January 31, 2023
This blog is about three ways I hope we can get the VFM Framework better publicised.
1. VFM podcast with Nico and Darren
Next week I get to do a few minutes for Nico Aspinall and Darren Philip’s Value for Money Podcast, I thought it was today but Gregg McClymont’s on first and he knows a lot about these matters – especially as he now works for an Australian firm.
I mention that phrase as one thing I noticed about Laura Trott is that she’s concerned about real people’s problems with pensions. She knows that people are worried that their DC pensions won’t be up to the promises people got and get from Defined Benefit schemes. She knows people are worried about the lack of security they’ll have in retirement from not having a secure second income. She knows that people are concerned that they know little about the pension they are in and want the reassurance they are getting value for their money.
I was thinking that having her as Minister for Pensions is about like having Jamie Vardy at Fleetwood Town when you’re a non-league side. You know she won’t be round for ever but you want her to do the best for you while you have her.
She’s promoting the Value for Money framework as pension’s Consumer Duty, our chance to define for ourselves a set of quality tests that apply to our workplace pensions so our customers feel confidence in what they save their money into.
Which is why the consultation matters, get this right and we have a way of comparing good with bad and creating standards for the future, screw this up and we are back in the same old same old world of the pensions industry talking to itself.
Your VFM questions answered – Pension PlayPen 7th Feb.
I’m pleased to say that the author of the VFM Framework consultation, Des Healey , will be answering questions on it at the Pension PlayPen coffee morning next Tuesday. I’ve already got a number of questions for Des from asking around
- A lot of people are surprised that value for money is so important to the DWP , TPR and FCA – why are you giving it so much attention?
- It’s quite a menacing paper isn’t it – would you say that you’ve been emboldened by the tough line taken by the Australian regulator?
- It’s striking how the paper moves from Trustee to IGC – do you feel there is an easier working relationship between you, TPR and FCA?
- You’ve got a new boss now – how’s it working for Laura Trott?
- You know my feelings about chapter 4 of the VFM paper (the bit I loathe) is this a consultation or a done deal? Is there scope for change
- If you do net performance right – what’s the point of the cost and charges test?
- A lot of value for money assessments focus on quality of service as the way to increase contributions, you don’t use “contributions” as part of the Quality test – why?
- The paper scarcely mentions ESG , was this deliberate or was it an oversite?
- How would you feel if you were a member of a DC scheme and was told it was not delivering value for money?
- Does it worry you that only one IGC VFM assessment has ever rated an insurer as not giving value for money – how do you avoid VFM-washing?
You can also ask Des anything you like about football, so long as the answer is Celtic winning.
Getting to grips with chapter four
As I’ve already said, I’m happy with 95% of what’s in this consultation, but I’m not happy with chapter four which is a cut and paste out of the DB performance measurement manual.
Bottom line is that DB and DC are different, that’s Laura Trott’s point. DC is about individuals taking their own risks , so why do we define value for money for DC schemes based on some top-down formulation that was dreamt up to inform DB trustees of the risks to sponsoring employers? The answer is of course that the DWP had to talk to people who only know about DB and haven’t yet talked to people who understand VFM from the perspective of the people who take the risk.
Let’s be clear about this, the risk of poor outcomes is not born by trustees, employers , TPR or the DWP, it’s born by citizens who do the saving and have the investment done for them. The VFM they get isn’t some obscure metric based on some fanciful notion of VFM dreamt up by Trustees and IGCs, it’s a simple equation based on the amount they put in and the amount they get out with the amount of time other people have got their money as a key consideration.
Chapter four of the VFM framework consultation needs to be turned on its head so we start measuring performance from the member’s perspective and not as if members were being guaranteed scheme pensions on a defined benefit basis.
So most of my energy over the next few weeks that the consultation is open, will be to get the Government to reconsider how it conducts its net performance test, so that VFM is fit for the purpose of telling people how they and their employees have done.
If you are interested in my little campaign on this – get in touch with me at email@example.com.