Should VFM top the company’s pension risk register?


I sat in on a discussion yesterday between FCA/TPR/DWP and a number of large corporates that offer DC workplace pensions to their staff. Under the Chatham House rule I can report what was said but not who said it.

There was one over-riding insight that linked large employers with small and that is that companies have their own agenda on pensions and that these are various and hard to measure.

We heard from employers whose brands are reinforced by their benefits packages, employers who benchmark their pension against those of their rivals to maintain competitive for recruiting and retaining talent. We heard from employers whose relationship with their unions depended on promises over workplace pension payments.

I can report for smaller employers where the issues are more heavily weighted towards survival, compliance and operational costs. Large schemes are no less cost conscious, but they have budgets. Many small employers have no budget , nasty surprises can pose an existential threat – workplace pensions have a different value at risk.

The real cost of pensions

Anyone who has run a company knows that the cost of pensions is more than the contributions paid to a trust or an insurer. They include the cost of payroll integration, of managing a trust and of meeting the numerous calls from financial advisers, auditors and lawyers.

The principal driver to consolidation is not the desire to improve member outcomes but the realisation that most of the on-costs of running a pension, are not improving member outcomes and could quite easily be removed – without detriment to staff.

This reading of the economics of workplace pensions calls into question the need for a VFM framework – as a means to consolidate.

The impact of a VFM assessment to a company

But yesterday’s discussion  considered the impact of a report on a workplace pension’s “performance-cost and services” landing on the CEO’s desk, especially where the three measures were marked red or orange.

My impression was that while the employers in the room didn’t think this would happen to them , they could see such an eventuality as being bad news. I introduced the analogy of an OFSTED report, which brought strong and passionate responses from the corporates.

If the VFM framework is to have a positive  impact on the outcomes of members, it must be read, digested and acted upon – as OFSTED reports are.

I suspect that the possibility of a pension manager’s CEO reacting decisively to a VFM assessment , is not one that has been properly considered.

The new risk

To date, the quality of the workplace pension has not been a corporate issue. Most DC pensions are measured firstly by the employer contribution and secondly by the AMC.

The idea that a well funded, low cost workplace pension might not be providing value for money is unlikely to have occurred to many senior executives, other than those directly responsible for the pension. For smaller employers, that thought may never have entered anybody’s minds.

But the RAGs – if measuring a workplace pension red or amber, are potentially dangerous documents which present a risk to employers of showing them up as choosing and managing a sub-optimal pension for staff. It is likely that some employers and some unions will request to see the employer’s VFM assessment.

While it is not expected that the assessments are shared automatically with staff, it is hard to see how staff could be denied sight of the assessments on request.

The new risk to corporates from pensions , will be that the company’s workplace pension is assessed as no good.

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 Should VFM top the company’s pension risk register?

  1. Martin T says:

    I’d be pleasantly surprised if more employees, of small/medium employers in particular, take more interest in their pension prior to receiving their retirement wake-up pack.

    I suspect like the Chair’s report, the annual statements etc that this will be a compliance document that creates lots of work for the scheme and the advisors but is ignored by the members.

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