Jo Cumbo gets real on “real assets” – VFM from the saver’s POV.

Jo Cumbo talks with Darren and Nico on this week’s VFM podcast

Jo is a “once in a generation” pension journalist, we are lucky to have her reporting in this country, I’m lucky to live round the corner from her office so we have the odd coffee together. It’s a privilege and so it is to listen to her for much of the 61 minutes of the podcast.

I’ll leave the personal narrative to her and I’ve written about her contribution to the BSPS debate, as Al Rush said yesterday, without her intervention, much of what happened after would not have happened. That’s the power of the press and the FT in particular.

This podcast is about the deal that workers are getting out of workplace pensions. It is not about the pensions industry though it focusses hard on the Australian’s experience of VFM measurement , concluding that – for all the politics – that is what the DWP are trying to replicate.

Jo – as Laura Trott did in a recent interview with Mona Dohle, focuses on what happens when you start comparing what has actually happened to saver’s money. In Australia, 13 funds got called out for non-performance and 12 had to shut up shop and combine with better managed schemes.

There are mastertrusts , we know , which are failing their members right now. There are DC occupational schemes that aren’t giving value to members – or to sponsors, there are some rubbish non-workplace pensions too (but we’ll get to them other ways).

Jo is in no mood for joshing, this is serious stuff. If we want a successful workplace pension system we are going to need to get people talking about their pensions like Aussies do about their Supers, we are going to have a proper means for employers , trustees and (eventually) members, to compare their pots and we are going to have to start getting real about real assets.

The conversation about investments in productive (formerly patient) capital , between Nico and Jo forms the heart of this episode and it is very good. Darren is also good , putting the argument into the political and regulatory context.

But it’s Jo’s focus on what members get out of paying more on trust that an illiquid asset will deliver a better retirement standing of living – that makes this section hum.

The debate is about who gets the value. Is it politicians who can boast how they harnessed Auto-Enrolment to build Britain back better? Is it the Treasury who can ease up on debt issuance and rely, as Australian States do, on pensions schemes to fund their bridges and hospitals? Or is it those marshalling the money into private markets for a living?

Understandably, Jo is suspicious of the motivation of all these stakeholders and returns again and again to the fiduciary duty of Australian trustees to act to the financial advantage of members. Bottom line, Australian Supers are not a free for all, due diligence is done and organizations such as Gregg McClymont’s  IFM invest in a responsible way, because of a well structured and governed access to private markets.

I sense that Jo does not believe that either Government or their regulators have yet to replicate this access in the UK. Jo’s beef with VFM is that it assumes there is alignment between Government and Industry on the benefits of consolidation without much evidence to back it up. Nico comes in here,  fresh from trying to set up such access, with some strong words about why Jo is right to be sceptical.

But I am trying to replicate a conversation that you can listen to yourselves. I get the feeling that Jo will support simple VFM tests that put performance first but quality of service in the mix. I am quite sure she will want to see cost and charges in the mix but not as the arbiter of good but as a means to see what we are paying for compared with what we are buying.

Personally, I think the DWP have got it right when calling for a split between investment and “other” costs within the AMC. Ultimately , the measure of how efficient the management of an asset is , lies in the price of the asset not the rents extracted. Warren Buffet & Co may pay themselves a lot to run Berkshire Hathaway but what do shareholders care? What we should be interested in , is the amount of our charges being paid to managers of our money and the amount retained by the provider of other services.  But this is getting too deep into the weeds. Jo is right to point to Chris Sier’s work on the cost and charges templates, we know more about investment efficiency today than we did in the past but there is clearly much more to do.

This was, as expected , an excellent use of an hour of my time (as a listen) and I would recommend you  listen to the whole podcast. Next week is Romi Savova , who I’m pleased to see coming in to talk. Pension Bee are currently referred to by many as the “yellow peril”, but not by me. They have done more than most to shake things up. I hope the boys will pick up on Jo’s comments about transfer times in Australia being down to 3 days and continue this conversation in a British context.

About henry tapper

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