As expected, the DG publishing’s DC Strategic Summit held in Liverpool Street , offered us a day well spent. Many thanks to the organizers, the sponsors and the speakers. As I have said in my feedback , it is hard to see how this day could have gone much better.
I hope to draw on the various talks in future blogs but I’ll start with the VFM discussion at the end which featured two chairs of master trusts , one IGC chair , Darren and Nico and the co-founder of Ignition House, Janette Weir.
The agenda for the session had been redrawn for me by a statement from Richard Smith on MoneyHub’s findings about what people want from a pensions dashboard.
“People are fed up with their ignorance and fear of pensions – they want to learn” – Richard Smith
It has become obvious over the past few years that the one thing can all be taought about DC pensions is how much they cost – the annual management charge being the only objective measure we can compare – it is used to determine decisions by procurement teams – as a proxy for value and for money.
Throughout the day, we had heard concern that this left no space for innovation and meant that DC savers were denied access to the return seeking assets enjoyed where the “mind-forged manacles” of the basis point saving held DC pensions in irons.
The dilemma had been first raised by Emma Douglas in the keynote panel when she . Iren Levina and Sonia Kataora speaking for the Productive Finance Working Group explained why our workplace pensions aren’t working productively for us. It was there when the Lord Mayor of London, Nick Lyons , delivered his keynote on how Government and industry can work together to make a venture capital fund accessible to DC schemes. It was there when Stacy Standen of SUEZ explained how hard it was for members of her scheme to understand where their money was going.
The pensions industry is failing to offer any other version of value than “cost and charges” and in failing to do so, it is denying ordinary savers access to opportunities which should rightly be theirs.
To quote Jannette Weir and the people who she showed us on her vox-pop videos
“people aren’t making proper comparisons because there’s nowhere to go for them”
Although I did not hear the phrase uttered once in the day, this is a massive failure in our “consumer duty”.
One of the panelists assumed that when I pointed out that efforts to explain net performance and quality of service in VFM statements made by trustees, IGCs and GAAs were not understood or even read, I was referring to consumers as savers.
I was not, the consumers of workplace pensions , the people making the buying decisions are employers, they decide whether to support the continuation of own trust schemes, or the choice of GPP or master trusts to participate in. Though they are not held to account for these decisions, employers think it worth while paying consultants to review their schemes and usually change schemes following a review.
These “people” are those referred to by the OFT in 2013
The IGCs were set up to primarily to establish a coherent framework for the “buyer side” to make good decisions and in this they have failed. There work has led only to an enhanced appreciation of the importance of cost and charges. No measure has emerged to compare value and as Nico Aspinall pointed out, even the comparison of costs and charges between Nest and a mono charge scheme is proving beyond most buyers.
The value of knowing the cost of something – lies in knowing what that cost is buying – which thankfully, the disclosures of the VFM framework will tell us; we should know going forward how much of the default AMC is being spent on investment and how much on the provider’s other expenses.
While complex charging structures – in place at People’s, NOW, Smart and Cushon are a challenge, they can and are recognized in the data that should be used to determine net performance – the data that gives us “time-weighted” not “money-weighted” returns, data that tells us what “we actually got” not what the scheme assumes we got.
As Janette Weir pointed out “people want to know performance that is personal to them“. They want a metric that they compare things with – other than cost. Again and again the vox-pos said that pensions were too important to be chosen on cost alone.
This sadly was not something that seemed to get taken on board despite one trustee on the VFM panel saying that VFM was “giving members what they wanted”. Flat-earthers continue to lay down the law. Columbus, Copernicus, Darwin – you should have been alive at such a time.
The conclusion reached by the two master trust chairs (Andrew Warwick Thompson and Ian Pittaway- also an IGC chair) was that VFM should be decided upon by a panel of experts whose judgements could be handed down as definitive. Sadly this is something that no-one seems to want – it is what we have now and it isn’t working.
What we have now is non-compliance of TPR requirements that schemes with less than £100m provide VFM statements based on the net performance methodology proposed to be adopted going forward. It is proving too hard , too expensive and even when completed, it is having too little impact. It depends on a system of measurement appropriate to DB but not to DC. It exists because no-one has challenged it.
This does not need to be the case. If we could unlock the data that trustees and insurers own – and which is the right of employers to interrogate – we could find out the true value that savers and their employer-buyers, are getting from pensions. All the information needed is stored in member data which is readily accessible. As was said at the AI session that concluded the day, “it is not the data but the questions you ask it – that determines its value”.
Sadly, we look set to continue net performance tables unless the DWP , TPR and FCA embrace something better.
Persisting with a reliance on a panel of experts to come up with the answers – which looks likely with the VFM framework, will mean RAG tests that are as obscure in their derivation as ever. People will continue to be sick of their ignorance and fear of pensions and decisions will continue to be taken on the only obvious metric – cos and charges.
Persisting with the same metrics that have been ignored by most trustees who have flatly refused to provide them (in breach of their requirements in law) will render the VFM framework a white elephant.
The alternative is for the Government to simplify and deliver metrics that people can understand – and get excited about – as they are doing in Australia. This may be an anathema to the experts but it is the only way for us to get the simple and robust pension structures in place, fit to invest productively for the good of all.