I spent my lunchtime yesterday wondering up to the Regents Canal in Islington listening to Nico, Darren and Sophia Singleton talking about VFM from DC pensions. Well that’s not exactly true, more of the conversation was about DB plans (and interestingly for today’s Pension PlayPen coffee morning) what to do with trapped surpluses. It turns out that XPS (who Sophia works for) is setting up VFM friendly DC plans to untrap DC pensions and pay them to those workers who don’t get the DB pension (or at least that’s how I think it works).
You can listen to the podcast from this link
Among the various ideas being ping-ponged around the pod was the formation of a taskforce to look at how pensions can better impact society, the news of the dashboard’s delay and a long discussions how DB actuaries could release themselves from their bondage and head for the sunny uplands of DC. All of which was fun but didn’t really get to the point of the podcast – Value for Money.
Pension Consultants from the actuarial practices have had a lot of influence over how Value for Members has shaped up and I have to say, they haven’t had a great track record of measuring it. While I am sure that members are getting more value as a result of the tightening of regulation, the increased resources of a few master trusts and the progressive thinking of many trustees (spurred by good advice from consultants), the average member has no more idea whether they are getting value than they had 20 years ago.
Worse, the average employer is no more able to differentiate a good scheme from a bad one which is why employees are so at the mercy of the market for the outcome of their workplace pension.
It is understandable that consultants are more interested in talking to large schemes , they are of course the schemes (or the employers that participate in them) that pay the bills. It is also understandable that consultants are interested in the differentiating schemes on the basis of quality of service and their strategic intent on investment and the payment of pots and pensions. The forward looking analysis of the market is what I’d pay Sophia and others to do for me – though I’d like to know how my scheme had done in the past for starters!
And , as podcast rightly pointed out, the vast majority of employers (let alone members – which is what the consultation advises) will not have access to the research and insights of an XPS or similar.
So where I think we get to , in discussion like the one Nico, Darren and Sophia had, is that there is VFM for consultants and VFM for the rest of us. Which is the way of the world. I don’t mind not being able to afford to consult with an actuary about how my scheme is doing, so long as the scheme sends me a report that makes sense to me- of how it is doing.]
If that report tells me the scheme is doing badly, I will look forward to being offered an alternative and for a just transition towards value to take place. As a small employer I am used to having things done for me and if the VFM Framework does things for me – that’s fine.
But while there are 1.2m employers participating in workplace pensions, only around 7,500 employ advisers of any kind to help them assess whether they are in the right scheme. The rest have no yardstick, no benchmark on whether their members are getting good outcomes or bad, good service or bad and whether they are paying over the top for what they get.
And this is why the consultants have to recognise that their special skills are directed towards a small number of employers with a significant number of members and a consultancy budget and that their response to the consultation must not be to shape the VFM Framework to suit them, but to allow them to do their work while the Framework helps out the employers that are currently so underserved.
Necessarily this means that the brilliant things that XPS does, and Nico did when he was a consultant, inform the VFM Framework by defining what it cannot do. For instance, the VFM Framework really can’t give employers or even trustees, a clear expectation of what the future will bring (forward looking measures). Nor can it really include the subtle nuances in the service propositions of the various master trusts and retail workplace pensions service propositions.
The impact of consultants on the VFM Framework should be limited and I hope positive. They can show ways to make pensions intelligible to employers so that they and trustees can make sure their staff are in schemes that are fit for purpose.