No Nico! VFM is a measure to help consumers – not actuaries!

This blog responds to Darren and Nico’s VFM podcast with Zoe Alexander of Nest and you can listen to that podcast from here. It’s well worth it.

The blog divides into two, in the firs half I challenge Nico over his views on institutional and retail pensions. I don’t think he can say that workplace pensions beat retail SIPPs with certainty. But as the risk of DC pensions is born by the saver, I’m not sure we can really talk of institutional DC pensions in a meaningful way. 

The second half of the blog is me getting behind what Zoe Alexander is saying – which is because I agree with her! But it’s also me having a go at Nest which has been lazy in engaging with its public, and other stakeholders on pot consolidation, self-employed savings and most of all, the Blueprint for pensions which has sat on a shelf for 6 years.

The two sections are joined by a frustration at the complacency of the big workplace pensions and those who run them – they have not pulled their finger out while the auto-enrolment money has flowed in and it’s no use these pensions moaning that we are 10 years off the pace when they should have been setting it.

Here’s the link to this and other podcasts in this series.

No Nico No!

It’s time I made an intervention in the Nico and Darren FM podcast on Value For Money . After 6 episodes 34 minutes and 37 seconds. Nico lays his cards on the table

“spoiler alert, there are no retail products which are value for money compared to institutional – that’ s just a fact – well there just aren’t.”

This comment was made in front of Zoe Alexander, Director of Strategy and Policy at Nest who had just outlined the things that people see as value for money from their pension

  1. “A pension is a pension” – VFM is a pension paid from a pot
  2. People  want one pot
  3. People want to measure success by the size of the pot and the size of the pension.

So let me challenge  Nico on Zoe’s yardstick for VFM

  1. Show me where “institutional” pensions have helped ordinary people turn their pension into a pot
  2. Show me where institutional pensions have helped people to find their pots and bring them together
  3. Show me the evidence that institutional pensions are delivering better investment outcomes than retail – what measure allows ordinary people to see that?

On any of Zoe’s yardsticks for VFM, there is currently no framework  that compares  institutional pension schemes like hers with SIPPs. But people like me (invested in workplace pensions) have to decide whether to wait for a proper pension option, wait for help on how to bring our pots together and wait for information  which allow us to make meaningful comparisons on investments. We need help on what outcomes are being achieved by savers in different pensions.

And by far the most important of these criteria to savers  , the one the DWP , FCA and TPR are focussing on, is the “size of pot” – the “outcome of the saving and investment”. As Darren, Zoe and Nico lament, stage one of the VFM framework is not planned to compare ,SIPPs and other non-workplace pensions , with workplace pensions and tell us where people have got better value.

This is one of the reasons I started AgeWage. We can already compare outcomes from workplace and non-workplace pensions using the internal rates of return savers get in each. My company has analysed over 7m IRRs of individual savers.

We do we generally see better results from workplace pensions and better results from workplace pension defaults than from “self-select”.

But our universe is too small to be conclusive and while workplace pension scores tend to be better than non-workplace, the evidence is patchy.

There are plenty of poor performing workplace defaults that get asset allocation , currency positions, transitioning and contribution administration wrong. We cannot generalise, we need to weed out losers, promote winners and create economies of scale through consolidation.

And while we are about it  let’s create a VFM framework that publishes who is delivering and who is not. We need an evidence base , not a prejudice base!

Clear league tables that employers can use to choose. Clear information to savers  on how they’ve done – like they get in Australia – but better.

Data is king – we need the evidence base of the VFM Framework and we need to start without prejudice.

Nico’s statement is made from a long-standing prejudice among consulting pension actuaries which needs to stop.

The long standing prejudice against retail products

Actuaries have  for decades applied their DB framework to workplace pensions and come up with the gobbledegook of Trustee and IGC Chair Statements.

10 years into auto-enrolment we still don’t have a way to turn pot to pension that improves on the annuity , we make it next to impossible to bring pots together (partly because of the institutional/retail prejudice) and the best we can come up with to measure how pensions have done is chapter 4 of the DWP consultation and the 3200 data points of net performance tables. These net performance tables, designed by the Government Actuaries Department are the result of DB actuaries importing their analytic tools into DC saving. Square pegs do not go into round holes.

So currently, consumers have no way to compare their VFM on their terms and if actuaries got their way, that’s the way it would stay

Nico’s prejudice doesn’t extend to him wanting to ban pots transferring from workplace to non-workplace pensions. He describes himself as a “libertarian paternalist” – which to my mind translates into “I know best , but do as you will”.

But that doesn’t stop him making it clear that anyone who transfers from an institutional to a retail pension is losing value for money.

“Caveat emptor”- from a libertarian paternalist.

Nico makes a “caveat emptor” warning for those who do and explains that the FCA (Cobs) rulebook is the length it is because of “after the scam” interventions.

There are already plenty of such warnings  from tPR and FCA that allow workplace pension administrators to throw red and amber flags at transfer requests. The DWP has made it clear that many of these flags are not being thrown as intended

For many people are choosing the likes of Pension Bee, Interactive Investor and AJ Bell with good information and a clear understanding of the impact of charges, the investment choices  and most of all the pension options available through non-workplace pensions.

Read to the end of the blog to see just what that means to a 61 year old DC saver wanting to take flexi-access drawdown.

Nico’s warning  against retail products is shared by large swathes of institutional DC people who meet up at conferences hosted by Nico and exclude the views of anyone but his magic circle.

My personal view is that without the innovation we’re seeing from retail providers such as Pension Bee, Interactive Investor and AJ Bell, workplace pensions would continue to fail on two out of three of Zoe’s criteria and while I support a view that outcomes are probably better from within workplace pensions , I do not support the ongoing hostility to transfers that I hear in sections of this podcast and elsewhere.

From re-listening to the podcast, I suspect that neither does Zoe – right now retail products are the best option to get paid a pension and a lot easy to use for combining pensions than their workplace equivalents. They may not be institutional but they are often better focussed on consumer needs.

Nest are not blameless – despite a fine show on this podcast.

I think Zoe Alexander made a lot of sense on this podcast. But I’m not going to let Nest off the hook here. She moans on the podcast that much of what we are now consulting on should have been discussed 10 years ago, including in this risk-sharing pensions (aka CDC) and measures so that people (including the people who act for employers) can choose pensions that are best for them (and their staff).

But rather than sitting in the driving seat on these issues – they’ve been absent from the debate.

This blog started in 2009 and in over 6,000 posts has consistently argued for a system where we have pensions where promised, we have a way to work out what “good” means and a measure of when good is being achieved that focuses on the “money out”. I have never had any interaction with Nest though they have tried to shut me up a couple of times.

Nest has no doubt got its private input into that debate and it has set up a think tank called Nest Insight, that could have been addressing these questions. But as far as I can remember, the sum of Nest’s contribution to creating pensions from workplace pensions is the “Blueprint” – a 2017 publication that rightly gathers dust on policy-maker’s shelves. We also have and Nest’s guided retirement fund which is the best it can actually do with the constraints placed upon it.

I appreciate these constraints but I want Nest to be much more active in the debate – I look forward to its response to the DWP’s VFM consultation.

If Nest wants to position itself  behind  Zoe’s three points, it should be doing more than talking with the DWP. It should be actively exploring better ways to pay a pension from a pension. It should be doing what Zoe Alexander wants top get done –  help people  consolidate pots and provide Nest savers with pensions. It should  also engage with a growing number of people who want to see performance measured by savings and outcomes.

I am prepared to be surprised and delighted.

Nest’s shortcomings are all in the “not done”

Let me remind Zoe, that Nest – despite currently borrowing £800m from the tax-payer has still to create a bulk transfer facility with which to participate in bulk pot consolidation, still has some of the longest transfer times for people looking to take individual pots from Nest and has vetoed all attempts to work with me and my colleague to get a simpler way to measure people’s experienced returns from their pensions (money in , money out).

And Nest Insight have spent most of the past 10 years on the sidecar saving project with very little to show for the huge amounts of other people’s money they have spent on research. So where is the research into VFM for savers, if Nest believes we should be focussing on retail outcomes, what is Nest’s interaction with SIPPs?

Shouldn’t SIPPs be talking with the DWP?

Darren argues that non-workplace pensions – e.g. advised SIPPs and non-advised SIPPs from organisations like SJP and Pension Bee (respectively) should be informing on  the consultation. Well of course they should be.

There is nothing stopping them and I’m pleased to see that I’m getting a lot of interaction with organisations as various as Pension Bee and SJP.

Which is why I am asking that when I meet with the DWP to deliver my response to the consultation, I will include their views.

Pods too can do work on this , let’s see some people involved in retail products on the VFM podcast .

And I am very pleased to be meeting again with the DWP to make some of these points in March. I’m pleased to hear that the DWP will be bringing to that meeting both tPR and FCA. FCA are often thought of as the retail regulator (though they regulate institutional pooled funds) , TPR are thought of as the institutional regulator, though via the master trusts and DC schemes they regulate, employers have offloaded all risk onto the retail consumer.

Definitions of “institutional” and “retail” are ultimately  fatuous because almost all risk is with retail customers. TPR and FCA are ultimately doing the same job with VFM and it’s a retail job.

Those people who understand the customers are the people who have most to say about VFM, the people who work closest with ordinary savers do not work in actuarial practices or fund managers or people who hang around in pension conferences, the people that know most are the people who speak to consumers.

And why wasn’t Nest mentioned on Martin Lewis’ Pension special last week?

One of he most important discussion we’ve had on pension VFM this year, occurred on Martin Lewis’ 90 minute pension special where we heard the voices of consumers and of people giving guidance and advice -Martin Lewis, Steve Webb, Sarah Lord, Claire Jackson to name four. Watch that Nico and Darren!

During that discussion , Martin and Sarah advised the self-employed to buy stakeholder pensions. Nest offers the self-employed membership of Nest on the same terms as if you worked for a large employer. Where were Nest on Tuesday night? Why aren’t Nest arguing for the self-employed to use it. Why don’t they, like me – advertise Nest facility – available on this link?

Nest is an institutional pension scheme that currently pays no pension

Nest is a retail pension that behaves like an institutional pension. Nest is a great saving scheme  that almost everyone can use, but it is not used by self employed, it is not promoted for consolidation and it doesn’t tell me how its doing.

Because I offer AgeWage scores , I can tell myself it is doing really well, but I have to throw a red flag against it for quality of service, Nest won’t pay me a pension and it won’t even let me draw my money down as I want.

To draw my money as I want from my Nest pension, I’d have to draw it down from a retail product – the kind of retail product Nico would ban me using.

What should I do now Nico?


You can watch Nico and Darren’s pods (including the latest with Zoe). here.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to No Nico! VFM is a measure to help consumers – not actuaries!

  1. Arjan says:

    We should cut through to the overarching reality which in my view is: private sector maximises return within rules and regulations. The latter have been weak (wrong?) for too long.

  2. emigreeu says:

    Most people tend to seek information that paints the product they support in a positive light, while dismissing any information that paints them in a negative light.

    “Gold plated pensions”, when most finish up in the protection fund.

    “Pots are not pensions” what does that mean?

    “Value for money” still struggling with that one

    Conformational bias is everywhere

    The individual needs to extrapolate the current habit and decide if the route is economically sustainable and then contemplate if a change should be made.

    The U.K. isn’t productive enough to pay for the entitlement that the winging poms demand

    • henry tapper says:

      Got a bit lost in the polysyllables but I can clear up the difference between a pot and a pension- a pension is a wage for life- a pot is exchanged for a pension

  3. John Mather says:

    Henry confirmation bias is a common cognitive bias where people tend to seek out information that confirms their existing beliefs while disregarding information that contradicts them. It can be challenging to identify and overcome confirmation bias, but it is essential to do so to make informed decisions.

    It is also possible that those responsible for structuring pensions over the last 50 years may have their own biases and interests, which could influence their decision-making processes. However, it would be unfair to dismiss their perspectives entirely without considering the evidence and reasoning behind their actions.

    The distinction of pot and pension is an odd one its all money only the beneficiary can determine the flow. The unknown date of death is the event which determines which runs out first life or money.

    You can’t increase the average for everyone can you!! All you may be able to do is to shift the risk at a price

  4. henry tapper says:

    Confirmation bias is a risk that comes out of complacency! I see a lot of complacency at these big pension schemes, this blog is hopefully creating waves but I doubt enough to shake the status quo! I’m hoping that the VFM Framework might do that.

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