The Jackal

Simon Kew appeared on this week’s VFM Podcast which coincided with him starting a new job as head of market engagement at Broadstone and with me bumping into him at an industry event. Simon has been the stalwart of the Pension PlayPen Golf Society , he was also lead singer of the Racket of the Lambs – Pension PlayPen’s contribution to rock and roll. In a previous life he was the Pension Jackal.

Meeting him had prompted me to ask myself what the role of a covenant adviser would be when the employer covenant is no longer necessary and Simon seems to have voted on that one with his feet, returning to public policy, a role he has previously enjoyed at the Pensions Regulator.

Which begged the question. What has Simon got to say about pension’s VFM when the pension in question isn’t a question but a pot – aka – the accumulating pot we save into while we work.

VFM for Simon is a donation of £200 to a rescue dog centre in return for Rudi- his rescued Greyhound. This seems intuitively a good example, dogs give much more joy than they consume in dogfood and pet bills.

However, while we are taught that dogs are for life, sadly they don’t last as long as we do, a dog’s life being rather short. And while they give immediate satisfaction, their departure leaves owners with heartache, as testified by Simon. So a dog is more like the drawdown of a pot, great while it lasts but likely to expire before we do. These points were made on the podcast by Darren, who raised them with great tact.

Tact is infact a word I’d use about the whole pod. The word “controversial” pops up several times without the pod ever sounding controversial at all. Actually, most of the conversation about VFM is taken up talking about TCFD and ESG exclusions, the “values for money” debate. The conclusion of the discussion on VFM is that a framework is rather less important than the outcomes of people’s savings which reminded us again that the people with the most valuable pension pots will be those who pay most into them.

This returns us to the importance of engaging people with pensions , which takes us to a further conclusion that if we loved our pensions like our dogs, we’d have better pension outcomes. None of this is controversial, the Equitable Life advertised their pensions through Clement Freud and a dog called Henry. People loved the Equitable as much for the Clement and his dog as for the VFM Equitable gave – until they didn’t.

Which brings us to the question of whether an employer covenant is part of VFM – which is an interesting question. Some banks provide accelerated outcomes by paying for admin and subsidising fund management costs – whether this is providing VFM is one of the questions in the VFM consultation – which concludes that it isn’t. You might consider that such subsidies – which include the subsidisation of governance , the payment of the schemes legal and advisory bills and so on are also accelerating VFM.

If you work for a big bank that picks up all your bills and pays a big whack into your pot, then you are in a valuable scheme but whether it is offering VFM is a different matter, the DWP conclude that the tests for VFM are about the efficiency of the investment process in turning contributions to final pot, the quality of the service provided and the apportionment of cost and charges.

So a scheme with a strong employer covenant can provide poor VFM – if it isn’t well run. Nico asked the question of master trust TCFD statements and concluded that multi-employer schemes have no employer covenant, the scheme’s TCFD disclosure is exclusive of the employer putting the money into the scheme.

So , bizarrely. we can conclude that in terms of VFM and  TCFD reporting, the employer covenant is minimal.

But here’s a thing. The employer is one of the key stakeholders in the VFM Framework because it is the employer who should be looking at the VFM tests and determining what to do about the workplace pension. So the employer’s covenant to staff could be to ensure that the scheme in which staff participate- whether as members or policyholders, is providing VFM.

This might well be of interest to Simon, who is clearly struggling to get to grips with the VFM framework (it being his first week doing a new job).  We know that one of the key questions facing the DWP in drafting its consultation response is whether the employer is going to be required to engage with their scheme’s VFM. If this obligation falls on them, the covenant of the employer to staff is extended from choosing a qualifying AE scheme to choosing a scheme that is both qualifying and offering Value for Money.

So perhaps the VFM Framework may help to determine whether the employer discharges its pension duties to its staff or not.

The next question is whether that duty extends to the AE savings function or beyond.  I know very few employers who consider they have a covenant to staff who have left service, certainly in DC. A pension’s for life, not just the workplace, whose responsibility is it to ensure people’s pensions last as long as they do?

The Powerful coil of the Pension Jackal – Simon Kew