Julius Pursaill and I get on very well, we see eye to eye on most things and though I don’t have his investment insight, I think he recognizes I know a thing or two about how people think about pensions!
So I’m pleased that he’s the guy being interviewed by Nico and Darren on their VFM podcast , especially in a week when pensions are little more newsworthy than usual.
And I am sure he’s not going to send me a howl of anguish over social media for calling him out over what he’s saying – which is 95% right but 5% wrong (an important 5%)
The podcast in question is #11 and you can access it here.
Skip the buffoonery and laborious discussion on the pension reforms (that impact 1% of us) and start at minute 28.30.
The “mis en scene”
Nico asks Julius ” what is VFM in pensions”
Julius says “it’s about outcomes”
Julius refuses to be led down a rabbit hole by Nico who continues “is VFM about adequacy”, to which Julius answers (I paraphrase) – “well sort of, but it’s actually about the efficiency with which you turn contributions into outcomes“.
Julius then gives me an unexpected plug for my work on “backward measures” before launching a common trope, that Henry Tapper has no interest in forwards measures.
I splutter! I have a workplace pension that’s worth more than my flat. It’s down 12% and it’s what I intend to retire on. If I thought the past was the only guide to the future I’d be looking up my local food-bank.
The error is this, people who “know” about pensions , find it hard to empathize with people who “don’t know”. Before working out what to do next, we need to know what’s happened so far. We cannot decide on the future without being aware of the past. The VFM framework helps us understand the past , VFM can’t tell us about the future.
We need to make our own minds up about the future – usually – with the help of advice. That is outside the scope of the VFM framework.
Sacking the manager
Palace sacked their manager this week. Viera went because the board saw he was leading them to relegation. He might have had the dressing room, been unlucky and been under-resourced but his team hadn’t had a shot on target since lockdown.
Like Palace, my season is coming to a close, I am not worried about next season right now, I want to know why my pot is down 12% on last year. Historic measures are pretty important when you are 61.
Now Patrick Viera may have had a plan for next season and he may have tried to sell it to his board, but there are times when you look at the table and say – I don’t want to spend next season in the Championship, so you don’t listen to the plan. I feel sorry for Viera but he didn’t convince his board he could do today’s job and he is out.
The VFM framework looks like being every bit as brutal, if your workplace pension is in the relegation zone and you’ve been playing all season, if your services aren’t being used or are despised and if you are charging a ridiculous amount and delivering peanuts, your workplace pension will be closed down by TPR or the FCA and you will be out as a fiduciary or a funder and your employers will be sending money to another provider in future. You workplace pension will have no forward look if your RAG is RED
Giving the manager another season
Now let’s say you are aspiring for your team to be in Europe and you avoid relegation – you’re West Ham and you give David Moyes another chance. You have poor performance right now but over time , your manager is still inspiring confidence but he is on a yellow (or in RAG ratings AMBER) card
This is when you are likely to want to get some external evaluation in. Is your manager having a bad season out of bad luck or has he picked a rubbish squad, lost the dressing room and on the grim path to relegation next season?
This is when you need your forward looking measures. In pensions terms , this is when you get in your Hymans Robertson or your trusted IFA (depending whether your team is premiership of National League). Incidentally, nobody asked Julius who he supports though Nico and Darren support Arsenal – so no dodgy IFAs for those glory-boys). I’d like to think that Julius has a bit of the non-league in him but he’ll know that you can’t get in-house or outsourced analysis of the future prospects of your team without paying for it and that Yeovil Town have not got the budgets of the gooners.
And here is my message to Julius. Julius, I think that any employer or trustee who sees amber or red on any of their three VFM RAGS should be getting in the adviser they can afford to make sure that the workplace pension they have is fit for purpose and if the answer is it isn’t, to find a workplace pension that is likely to give better value for money.
This is when I want the conviction of an adviser who tells me who to use based on his or her forward measures . If I am in doubt – I will seek advice but I’ll seek it independently of the VFM framework. If I have no doubt what is best, I will take the decision by myself but I will be conscious that I’m taken it on behalf of myself and my colleagues.
Why forward measures have no place in the VFM framework
The idea of a digital one stop shop which will empower decision makers to evaluate and decide upon their future workplace pension is a noble vision which is doomed to failure. The VFM framework can tell me if I have a problem, it cannot solve it.
As I read the ratings on the horses I was backing on Cheltenham this week, I followed form and took advice from tipsters on likely future outcomes. The advice was free, each tipster chose a different horse. The advice was useless.
That’s what you’ll get if you put forward measures into the VFM framework – you’ll get a ball of confusion with forward measures becoming the refuge of scoundrels whose workplace pensions are failing and who promise great things from new managers, new strategies, new brands.
The public are sick of having the wool pulled over their eyes by the promises of forward looking measures. If they want advice they’ll pay for it from someone they trust, they are not going to take decisions on some forward looking metric devised by the Government Actuaries Department or on the marketing spiegel of a provider’s ESG team. They are not going to buy into a future world, if the current world has not delivered. They are going to need convincing by someone they trust.
So my message to Julius and anyone else who thinks that the VFM Framework should be used for crystal-ball gazing is to bog-off.
Does that mean I have no use of advice, NO! I just don’t trust forward looking measures any more than I trust a robot for advice.
Advisers, whether working in the “retail or institutional space” are paid to think about likely future outcomes based on their analysis of the present and future strategies of providers. I think they should take into account the sustainability of a provider’s business model, its choice of investment platform, its exposure to diversifying assets, the quality of its investment team and its appetite to help me turn my pot into a pension.
There are a lot of factors that go into the evaluation of a workplace pension on a forward looking basis.
Right now, millions of people like me are staring at pension statements that tell us we got negative value for our money in our workplace pension in 2022 and we need to know if we are in that sad place because of our workplace pensions or because of the markets . We have no way of knowing. We should have.
At 61, I’m not sacking my manager, but I’m flagging that my pot looks amber and could be red. I am talking to advisers who can tell me whether I should move funds or even move my workplace pension. But I wouldn’t sack my manager without knowing I had someone better to replace him/her.