How good to Listen to Paul Watson speaking on Nico and Darren’s VFM podcast – extolling the opportunities to invest in UK productive finance. It seems that Australia . Canada and others have a rather rosier view of investment in UK life sciences and other growth assets than we do!

Co-opetition between Aussie Supers to “pony-up” and provide services to members is something we see too little of in the UK. As Greg McClymont has shown with IFM, Australians can work together to the general good while kicking seven bells out of each other to get new business.

12 years since the Cooper review, pension funds have “leaned into” the crafting of one mission statement that all Superannuation Schemes can sign up to. This is currently the wording in the bill

“To preserve savings , to deliver income for a dignified retirement, alongside Government support in an equitable and sustainable way”. (my emphasis)

Paul wishes that the word “preservation ” was included in the statement, to stop pensions being used for “jet-skis and liposuction” – raiding pension schemes for a  $10,000 withdrawal allowance, introduced during the pandemic.

If future Governments choose to introduce changes, they will have to be demonstrably supporting this mission statement. This blog supports that a similar statement could and should be introduced in the UK.

Paul even goes so far as to use the phrase “wage in retirement” (coined by Terry Pullinger of our CWU) as the heartbeat of the statement,

Examples of challenges to this mission statement might include a proposal for pensions to be raided for deposits so that young people can get their feet on the housing ladder. Does this add to retirement income? Paul sounded a little sceptical.

Last week the Australian Prudential Regulatory Authority (APSA)  has issued a statement on VFM. The upshot is that there is too much divergence in administration fees and cited platforms as an area where consumers are getting milked. Platforms in this sense is the retail investment platform which savers can use as a fund supermarket.

The FCA is looking at platform fees in a similar way, most of the emphasis so far has been on the wealth end of the pension market, but I suspect that there is plenty of fat to be worked off the workplace pension funds platforms.

Only one of the platforms failed the APRA VFM test but a bout half of the trustee directed options (the ones with the fiduciary duty on them) failed. Lesson for the UK – a fiduciary solution does not necessarily mean value for money, the “net benefit outcome” of fund platforms in the UK and Australia needs road-testing.

Strike one

Australian performance tests can lead to failure. When failure occurs, a letter is automatically sent to members using the Regulator’s wording , stating the Super is in special measures. Perennial under-performers have to close their doors or “merge”.

Strike two

If persistent offenders persist in under-performing they have to send another template letter saying they are closed to future money. No strike 2 letters have been sent so far.

Performance measurement against benchmarks

Each performance test is conducted with the use of a scheme specific benchmark , taking into account the specific asset allocation of the scheme (not a general benchmark).

Impact on fund management

Where under performance is identified , the general trend is for active management to be ripped out and replaced by passive.

League tables

Net benefit outcomes (performance net of fees) are published for anything between 6 months and 30 years. Costs aren’t ignored but they are a part of the equation. The net benefit outcome calculation is the internal rate of return that savers “drive away with”. It includes all the things that impact performance – bar none.

Is this any different from the UK?

Product disclosure statements include a template for fees and charges but they are not separately identified in VFM assessments.

The Australian system does not encourage comparisons to be made on the basis of cost. The Australian taxation office even gets involved publishing the net benefit outcomes on a league table. But Australian research suggests that people get confused when costs and return are separately displayed  (especially when costs are put against net performance). Those of you who have been reading the saga of investment trust cost disclosure in the UK will know that this confusion happens here and has the same negative impact, even where the consumers are the fund platforms.

Paul Watson – what a star!

I haven’t met this Paul Watson but we are linked in and i only wish I had spent more time listening to him as I was drafting our VFM submissions to the DWP.

Let’s hope that we can get some more of this fine fellow on this blog. I thoroughly recommend this episode of the VFM podcast.