Delfas says she wants to hear from consolidators so that regulations do not become an obstacle to innovation. #plsaannual23 pic.twitter.com/9QHXswGVoZ

— Henry Tapper (@henryhtapper) October 19, 2023

Speaking to the PLSA Conference on Thursday, Nausicaa Delfas CEO of the Pensions Regulator made it clear that TPR was not going to sit by and watch workplace pensions deliver a poor member experience and or bad member outcomes to millions of savers who rely on their employers to ensure they have value for money.

Delfas did not spell out the mechanism with which workers could “ditch underperforming plans but it’s clear there needs to be a secondary market and a clearing system to provide the mechanism.

Sarah Smart , TPR’s Chair is reported by Jo Cumbo in the FT as saying as much

“The shift that we are seeing now to putting power into the hands of the saver will progress.”

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How would a secondary market work?

There is nothing new with the idea, this blog was calling on employees who were dissatisfied with their workplace pension to make it known to their bosses in the early days of auto-enrolment. The Pension PlayPen website was originally set up to give small employers the chance to assess the VFM of various offerings and the suitability of each workplace pension to the employer’s circumstances.

Such a system could easily be repurposed for employers who find their workplace pension failing one of more of the Value for Money assessment tests, currently under the scrutiny of the DWP in advance of potential legislation later in the year.

No scoring system is infallible and I was shocked in the screenshot above (2015) that NOW pensions were deemed to be the workplace pension most likely to deliver value for money. But i was equally heartened to know that no provider on the shortlist thrown up by the underwriting process, has continued or merged in a satisfactory way. There have been blow-ups but thankfully First Actuarial analytics made sure they were not options on the platform. (BlueSky will be part of Smart from July 2024, Friends is now part of Aviva.

For a secondary market to work, it needs to be both manageable and well researched. We now have data on the performance and the member experience (enjoyed) by savers into most of the major players over 10 years or more. New entrants to the workplace market have been few  – Cushon is the only new mastertrust, Penfold the only new GPP.

The mechanism for choosing a workplace pension is in place and employers can make that choice without advice

What commercial model would this work to?

One of the lessons of auto-enrolment staging was that the choice of workplace pensions was more often made with the help of accountants and other business advisers than through regulated financial advisers.

I don’t see this changing. Unless the smaller employer has become a big employer in the meantime, there is unlikely to be resource for a full financial review. With the Master Trust assurance framework in place, the remaining occupational workplace pensions are now governed to minimum standards, have a proven payroll interface, have clear costs to employee and employer and are assessed through league tables offered by Corporate Adviser and some large consultancies.

The democratization of high quality analytics can happen, if the consultants who research providers , share their analysis. This is already happening through webinars offered by independent consultants – Hymans Robertson, LCP, Barnett Waddingham and Isio lead the way. Redington have deep analysis of the GPP market (though this is strictly confidential to the IGCs).

The creation of a satisfactory secondary market – which is commercially sustainable will depend on three things

1. Value for money comparisons, any ratings or league tables must be based on data not opinion; they must follow the VFM assessment methodology.
2. Digital- the comparison must be online with support available.
3. Competitive- no software is free to create and maintain and it’s IP has a price, but the price of the basic comparison service and a validation report should be measured in hundreds and not thousands of pounds.

The creation of a secondary market

There is no aisle in the money supermarket for workplace pensions and – as Steve Webb said in Manchester

“One of the things with the Australian funds is with everyone competing with each other, the marketing costs are high

Who pays for these costs? It is the member who pays.

Actually, if we harness the power of the employer to deliver efficient, cost-effective pensions, we can do it much better than everyone fighting for Mrs Williams.”

The Regulator’s powers

I have – since starting the Pension PlayPen over ten years ago, believed that employers must have both carrot and stick to review workplace pension. The carrot is that a good employee benefit creates a halo for an employer, the stick is that a bad one creates ill-feeling over time that the employer does not care for staff welfare during and after work.

TPR expects to get powers to enforce the Value for Money Assessment and the words of both Delfas and Smart suggest that they are more certain of this than I had hope for, when the VFM consultation was launched earlier in the year.

TPR are in deadly earnest and so am I (forgive this blog’s testy responses on VFM statements made on podcasts!). I am in deadly earnest because I know from research on master trusts and GPPs – publicly available, that member experience and outcomes from one provider to another does vary – as does the governance.

To have a properly formed and competitive secondary market for workplace pensions, we need vision and co-ordination. I believe that one can emerge, to the betterment of saver’s VFM.

The demo below shows how we created a market for small employers willing to choose a workplace pension in 2013. (you will have to endure 20 seconds of ads to get to it)