Sarah Smart and TPR’s VFM dilemma

Sarah Smart


This morning , Sarah Smart, Chair of the Pension Regulator, will be in conversation mode with the PLSA discussing how TPR will help deliver value for money in DC pensions.

TPR last reported on this matter last May when they published feedback on their joint discussion paper with the FCA on “Driving value for money for DC schemes“. Since then , the DWP has taken up VFM , forming its own VFM team to which TPR and FCA have contributed.

This webinar is the first time that we have had a chance to see how TPR’s position has developed from the rather chaotic feedback.

I will be there because this is a topic I find important. It is important for two reasons

  • If we get the VFM Framework right, trustees, employers and members will be in a better position to value what they have and make decisions on whether to stick or twist.
  • If we get it wrong, we risk spending a lot of time and resource nothing, time  and resource that could have been better spent elsewhere.

There are many people who consider the DWP’s consultation on measuring Value for Money, another unnecessary imposition on schemes , already over burdened with reporting. Occupational DC schemes already report on value for members through Chair Statements, they also publish accounts , issue TCF Disclosures and provide benefit statements to savers. All this statutory reporting comes at a cost – that cost is born by employers or the funders of commercial master trusts and ultimately it is passed on to members.

The “sniff test” for whether new reporting is required is the value that it adds less the value it destroys. There is a very real danger that the burden of reporting – especially reporting on performance . will do more harm than good. I hope that Sarah Smart will be sniffing for feedback from her audience.

Here’s our analysis of the performance reporting required in the consultation paper

colour coding represent different levels of possibility (red trending to impossible)

Since most of the requirements are multiplicative, they produce data points that need to be repeated for each new requirement and grow exponentially. So though individually, there may be only a single digit set of numbers to record for each requirement, these grow exponentially to a number that could be well over 3000 (Nico Aspinall reckons 3200).

Not only is this a lot of work to produce, it is a lot of work to analyse and certainly makes it very difficult to benchmark.

A better way

But there is good news. The performance analysis that is being suggested can be replaced by a different type of analysis which provides information that talks to what members actually get out of their pension schemes, rather than what fund managers report in fact sheets.

Not only that, but the data required to analyse what members get does not need the help of fund managers or platforms but is held by each scheme in their member records. All that is needed to determine what a member has received by way of a return is to know the timing , size and incidence of contributions and measure them against the value of the pot on a given day.

How DC schemes do is an aggregate of how members do. Since all the risks are with the member,  the assessment must begin and end with what the member gets. This is what is meant by “outcomes based” assessments. Switching to an analysis of what members get and valuing a scheme as the average of what members get is made possible because the member data can be analysed by being tested against a benchmark, being what the members would have got – in an average scheme.

This means that everyone can see what they got , what they would have got and can compare the two to see if value has been created or destroyed.

And since all the data is managed in a single place with no external input to the member data, analysis can be carried out to look at any scenario – at little or no cost.

There is still time to move to this new approach

I will be at Sarah Smart’s webinar this morning and I will be arguing two things

  1. That the VFM Framework has the capacity to make a huge difference to the way we value pensions
  2. That persisting in a top-down approach to performance measurement risks making the VFM Framework another initiative that like IGC and Chair Statements, takes a lot of time and resource and delivers little value.

The DWP Consultation runs to the end of this month and I am speaking with as many people as I can during the next four weeks to encourage them to look again at performance measurement.

For nearly forty years I have been trying to get my head around how my DC pensions are doing and in that time, I have seen many iterations of performance measurement, all of which have imported measurement techniques based on valuing the performance of funds.

But fund performance does not read across into member experience and it can’t be used as a proxy for member outcomes. We now have sufficient computing capacity to measure performance from the member’s outcomes and now is the opportunity to see how this works.

If you would like to find out more about this, please mail me at

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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