Choose value from purpose experience and comparison.

Robert Cochran is a very reasonable man – a child of the enlightenment. I like this post on linked in very much.

It is very important that we get back to thinking about value for money from the consumer’s not the industry’s viewpoint and Robert solicits 50 comments from people answering as consumers – even if they may have responded to VFM consultations from a corporate standpoint.

I tried to cheat Robert’s call for VFM anecdotes and look at how we measure VFM

Two things, you can’t be sure you have VFM unless you can compare your choice with the alternatives, and Alistair McQueen is right to measure it as return on investment. Your bag choice is another good example. We use our experience to determine VFM – so experienced performance is probably the best measure.

Robert pressed me for an example

Buying wine. You can only tell if you’ve got value for money after drinking it. Past performance is a guide to future enjoyment though it’s useful to compare the experience of others through surveys as loyalty can be taken too far.

My father introduced me to a red wine made in Lebanon, over the years that wine has increased in price but remained the same in quality. I can now buy similar wine at a much lower price and have done so. I can buy three times as much wine from a rival vineyard for the price of a bottle from Chateau Musar

By any estimate, the enjoyment of a fine bottle of wine is subjective. But the measurement of that enjoyment needn’t be. One measure is of course demand – which of course influences price. But a better measure , if there are sufficient reviews, is a wine’s rating.

Buying wine at £35 a bottle may not seem a comparator for buying a workplace pension for your staff (or considering ditching the one you’ve got). But the person running the business may well take both decisions in a day, using the same fundamental logic.

This , I assume, is what Robert is looking for. Some underlying logic to determine how we measure value for money.

One of the themes running through the responses  to Robert’s questions is the durability of the experience.  I suspect that many people will regard paying a lot for a bottle of wine as poor VFM because the experience is short-lived. If repeated regularly, drinking fine wine becomes boring and even dangerous. The “treat” factor is made valuable by it being a once in a while experience. You can only apply my formula of comparability and experience to fine wine, if you think you can compare a Musar with a Lafite – Musar is marketed as “The legendary Lafite of Lebanon”.

The comparison is interesting and suggests that Musar considers it is a better value Lafite rather than a comparable to the Co-op’s Coteau Les Cedres at £9.65 per bottle. If the experience you are looking for is that of a fine French claret, then Musar is value for your money, if you are looking for a wine you can drink every month, then a triple pack of the Co-op wine is better value for your money.

Why we need to be careful about purpose

My example is germane to the VFM debate Robert that Darren and Nico are engendering.

There are many people in workplace pensions who consider that in a “bottle to bottle” comparison, a workplace pension run on institutional lines would provide better VFM than a non-workplace pension run on retail lines.

To use my wine analogy, they could suggest that buying Cedres through the co-op you get three times the value than buying Musar through Waitrose. If you want to buy Lafite Rothschild 2003 through Berry Bros and Rudd , it will cost you £962 a bottle.

Lafite £962

I can point you to a workplace pension you can join as a self employed person at an AMC of 0.3% (Nest) , I can point you to a high-function SIPP at 0.75% (Pension Bee) and I can point you to a fully advised wealth management proposition from SJP at 2.4% pa

The purpose of these three propositions is different. Transferring your pension savings into Nest will give you a different experience to Pension Bee or SJP and you would only trade up to a more expensive model if you felt the purpose of that model better suited you.

If the only criteria of buying a bottle of wine was to swig it down regardless of the experience, you could buy a lot cheaper than any of the wines on show on this blog. There would be no reason for Chateau Musar and Chateau Lafite Rothschild would probably have been closed down by the French equivalent of the Serious Fraud Office.

But the choice is still there and there will be people who consider the purchase of a £962 – a purchase worth making – on oenaphilistic  grounds.

What the DWP has decided to do , is to exclude Pension Bee and SJP from the current VFM framework and to focus on the kind of workplace pensions that people are auto-enrolled into. Necessarily they will be the equivalent of the £5-10 wines.

The best things in life are free.

Alistair McQueen’s answer to Robert’s question is really good

Joining a running club. For fitness, fun, friends, personal improvement, sense of achievement, memories. Costs about £1 a week. Huge return on investment.

Indeed, many responses promoted subscriptions or items that could repeat an experience. I could add my prescription drugs which cost about £10 a month and keep me alive.

VFM from going to church, walking the hills or caring for children or adult dependents are activities  that produce  a great Return on Investment and can be labelled VFM if experienced and benchmarked.

Alistair may have been prompting us to  compare our £70 pm gym membership with his £1 pw running club.

Poor value for money

One final observation. None of the responses to Robert’s post mentioned an example of poor value for money. We are very wary of owning up to poor purchasing decisions, especially where we persist with them.

This I think is where the pensions industry finds the DWP’s VFM consultation difficult, because by  focusing on experience (past performance and quality of service) and trying to benchmark good and bad, it will inevitably create losers as well as winners.

Nobody submitting their pension to the DWP’s VFM framework wants to be told that it is poor value for money and should be withdrawn. We have got used to submitting our products to award ceremonies where every submission is short-listed and celebrated.

But in the harsh world of VFM, some pensions will fail, some will scrape through and some will be lauded and every pension will be given a rating of green, orange or red.

The wines that appear on the shelves of the Co-op, Waitrose and Berry Bros and Rudd have all succeeded by selection. Not all workplace pensions will pass the selection test and the public will feel better for knowing that there is an objective process behind the choice of workplace pension into which they are auto-enrolled.

We now have sufficient experience of workplace pensions and a proper means to compare, we know the scope of the consultation and it doesn’t include Pension Bee of SJP. But to dismiss their propositions would be like banning  the sale of more expensive wines.

About henry tapper

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