People will pay for things they understand and value.

Tower Crane with PENSION Word on Chalkboard Background – 3D Rendering

Thanks to over 1000 people who took time out of their bank holiday Sunday to read my blogs firstly ripping into Nico and Darren’s latest podcast and subsequently apologising for the two footed tackle.

You’ll excuse me for going back to what Nico and Darren were saying – because I think most people would agree with them- and not with me. I see the VFM Framework as exciting and innovative, Nico and Darren see it as a distraction from more important things. Having spent 19 hour long episodes discussing the Framework, this is not the conclusion listeners might have expected!

I expect that more people have read the blogs that have listened to the Podcast which is a shame as the Podcast contains a view that properly articulates why most people are heartily sick of the VFM debate. At around minute 50, Nico rounds on the VFM consultation which he sees as a distraction from  a broader debate on “adequacy”.

“We’ve been pushed off the ball to talk about VFM to focus on micro-detail”.

This is actually a very bold statement. Nico’s suggesting that the pensions industry has lost control of the game and he wants his ball back. It suggests that we are playing against the DWP. TPR and FCA in a struggle for better pensions.

Nico wants an alternative measure of success as “projected replacement ratio” , where a scheme can be deemed good or bad depending on its capacity to deliver a benefit – ideally a hefty percentage of final salary.

This approach rates all major DC schemes as “good enough” and shifts the focus away from maximising the returns on money and proper support for savers to the level of contributions whether defined or additional – resulting from engagement.

This is the debate the pensions industry wants to be having because it plays to the fundamentals of scheme design, that a company pension replaces income lost when someone retires from work and is funded to meet that goal. To all intents and purposes this is a DB or whole of life CDC approach. So Nico would have a DC approach that looks suspiciously like a target benefit scheme.

“If you join here , you’ll get something like an 80th, because that’s the number that matters”

Promising something like an 80th – is a variant on the “trust me I’m an actuary” theme, it is baffling to think that this could improve public confidence in pensions and save for employees of Royal Mail, not something that any employer would currently say to their staff of their DC workplace pension.

Prioritising contributions and income in retirement over investment is one thing. What follows is even more baffling.

Nico points out that investing to beat public market indices is hard and implies it is too hard for DC pensions. He advocates that instead of investing for growth, DC schemes stick with passive strategies and minimise investment fees. He is actually endorsing the “race to the bottom”

He doesn’t see how the VFM Framework can improve outcomes through consolidation and says that it may do the opposite.

This final view is based on a view that “more information does not lead to better choices” – a libertarian approach doesn’t work and we need strong Government which listens to experts to get things done. Which is somewhat at odds with Darren’s demands for better member engagement.

I think that a very large part of the pensions industry would agree with Nico (and Darren) and want pensions to focus on things that it feels it can control, such as contributions, engagement, sustainable investments and cost and charges.

But while Nico and most of the rest of us, consider investing in real unlisted assets for the birds, that is  what is happening around the world.

Australia, Canada, the great schemes of the USA are looking to increase their allocations to unlisted growth assets, not to please the politicians, but because the better returns are “off market” and because their scale means they can harvest value.

Why I find Nico’s comments so baffling is that only recently, he was a founder of a boutique investment house that set out to invest DC schemes in social housing, venture capital and peer to peer lending. Before that he was CIO of People’s Partnership, arguing for innovation of its massive fund.

The long rant which concludes the “guestless” podcast concludes in an attack on the distraction of social media. But the podcast is of course social media and Nico and Darren’s frustration that other views are available is equally baffling.

The next few days will see the PLSA investment conference discuss these ideas and many will anchor their views with Nico and Darren – setting themselves against testing of VFM through quality benchmarks.

In my view, this will lead to more of the same. The weight of money is with maintaining the status quo and against innovation.

Putting the alternative view is difficult as it was difficult to argue for auto-enrolment or – going back further – the creation of funded pension schemes in the first place.second half of the last century.

There is sufficient evidence from abroad to suggest that the approach behind the VFM Framework will succeed in improving outcomes and that we can get better pensions without having to increase the amount we pay into them.

To me, the best way to increase the amount we pay into pensions, is by showing that they are becoming better value!



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to People will pay for things they understand and value.

  1. Martin T says:

    I believe that the vast majority of members feel overwhelmed with information about their pension. More information produces more confusion and increases the desire to disengage from the system completely rather than engage – “I just want my money out as soon as I can with minimal tax. I want it in the bank where I can see it!”.

    This desire to withdraw is further amplified when the already limited faith in schemes and trustees has been eroded by a collapse in the value of funds put into supposedly ’low risk’ investments.

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