Taking VFM seriously – “waiting for others to join”


The photo has me in the inset taking the photo in meeting room 9 on the 12th floor of BlackRock’s Copthall Avenue City HQ. Ten minutes later the room was full and people were on the call from Enfield to Mumbai.

Getting members of DC schemes value for money is as much a part of BlackRock’s consumer duty as AgeWage’s and though we are at different poles of development, the meeting showed we are on the same page when it comes to innovating the antiquated method we use to tell people how their savings have done.

We measure BlackRock performance a lot and it’s great to have a serious discussion about how the AgeWage methodology works. Watching the scales fall from the eyes from senior executives as they realised that all the information people need, lies in their own contribution histories and pot values, was quite something!

Performance measurement is something that has been given to the quant teams of asset managers to do, since I started out advising people on Retirement Annuity Contracts in the early 1980s. At a recent meeting with TPR, a TPR strategist explained that the original decision to measure performance the DB way, without reference to the actual experience of savers , was taken to ensure that “alpha” generated by managers could be identified independently of the “noise” from insurance policies!

I repeated this remark yesterday. There were incredulous looks. DC performance is no longer about “alpha” , it is about minimizing tracking error from the beta and ensuring that the last bp of value is squeezed out of passive funds. DC saving has been stripped down to its bare essentials and is now being offered to savers at a price that would have been thought inconceivable only 25 years ago- when Stakeholder Pensions were being introduced. Back then, nobody thought you could deliver a pension within a 1% charge.

So much has changed, and yet we still cling on to using the quant teams of asset managers to tell us what the net performance delivered to the funders and fiduciaries of workplace pensions looks like. What started out as a serious examination of “value” is now no more than an exercise in “money”. Any emotional connection between a saver and their saving experience is ignored.

I’ve recently described the commoditization of the investment of our DC savings as “scorched earth”. Of course there is money to be made, and it is being made by BlackRock, but it’s being made by flooding public markets with more and more liquidity. Meanwhile – private markets are starved of funds , innovative firms -including my own – struggle to pitch for money and tap into the investment expertise that was so evident in the room yesterday.

There is a fundamental dislocation between the saver and his or her money, for so long as it is held by the pension fund and this is down to their being no narrative being given to savers about what the money is doing and how it is delivering the returns needed to give a saver greater dignity in retirement.

And at the same time, the people who manage the money, have become removed from the saver’s experience. What they see are charts of comparative performance based on the returns they submit to platforms who pass these on to journalists who publish league tables which get viewed by consultants and incorporated into reports which are ultimately ignored in favor of a race to the bottom on basis point charges.

There is no sense of ownership of performance. Savers cannot find out how they have done or compare their experience with that of others. There is little  real benchmarking being done by member, employers , trustees or even Government, this is because everyone knows that the numbers under discussion aren’t what members are really getting, only a proxy based on the assumptions that what the quant teams are churning out , meets the expectations of the consumers at the other end of this convoluted chain.

No one in the room I was in yesterday really knows what is going on in the heads of savers when they take the key decisions as they get towards retirement. No one knows why the average unadvised drawdown is 8%, why people strip out tax-free cash, why so many pots are left untouched. We assume that people are taking informed decisions based on the reams of information we give them. But the key information about how their pots have done, about the risks of their money evaporating (as so much did last year) and about how they are dong against others and their own expectations – all this is not given to them.

This is why people the chief economist of the Bank of England declared he knew nothing about his pension and had given up finding out.

I will go on talking about the AgeWage methodology and so will my colleagues. I’m pleased to see good people at BlackRock wanting to know more. I am pleased to be having regular conversations with Government departments and their regulators. It is good to see more consultants recognising that the old way of net performance is no more than a legacy of the sponsored DB pension.

But will the pace of change be enough. Will the VFM framework be just another iteration of TPR’s “value for members”, the FCA’s value for money IGC assessments? We will know in the next few weeks. I am not sure of the certainty of outcomes, but I am sure that I am right in pursuing innovation and if you agree with me that we need a better way of measuring how our pensions have done, I’d be happy to run the meeting with BlackRock- with you!

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Taking VFM seriously – “waiting for others to join”

  1. Martin T says:

    There are several reasons why someone might take the tax free cash when they don’t actually need it. Ones I have regularly come across are “The b*&**ds will just tax it otherwise” “I want to have my money in my account” “Everyone does” “It’s tax free now but it won’t be in the future – they’ll only change the rules again” “They keep shifting the goalposts – I was originally told I’d retire at 60, then 65, and now it’s 66 and 4 months or something – it’ll probably go up again before I can retire”.

    In short no feeling of ownership and no faith in the stability of the rules or the politicians behind them. There’s also the general bias of preferring current over deferred assets – but if members felt as much ownership for their pension savings as they do for their bank deposit account then that would reduce.

    My summary is my impressions but it would be quite easy to find out why people really have such a consistent desire to take the tax free cash – ask them.

    • Chris Giles says:

      Martin, another reason for taking tax free cash could be to buy a Purchased Life Annuity to achieve a higher net income than from the ‘full’ pension (dependent on the cash commutation rate).

      • Martin T says:

        True, especially if they qualify for a medically enhanced annuity. As I said, the list above is only my impressions from the members I’ve spoken to, it’s a limited sample not a comprehensive list.

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