We are spending a lot of time consulting with the FCA about how value for money can be measured as more than the costs and charges levied on a member’s pot. We are asking employers – whose pension knowledge is no greater than the sum of their staff’s, to decide on where future contributions go, based on a combination of costs and value with value being measured in terms of customer experience and net performance.
Meanwhile we are considering it innovative to ask individual savers to consolidate their pension with the decision being based on price alone.
This from Aegon who are using the same RAG rating method as is being proposed for the VFM framework
Aegon launches unique digital, Red Amber Green rated pension transfer comparison service
Aegon has announced the extension of a collaboration with The Pension Lab which enables Workplace members, particularly those without an adviser, to find and compare old pension pots.
This forms part of the new digital bulk transfer service borne from the original collaboration between Aegon and The Pension Lab, that smoothly transfers members from another scheme to Aegon within minutes and without paper.
The extended development enables members to retrieve and view details on their old pensions which are presented back as red, amber, or green (RAG). It includes information relating to any valuable features that may be present and, an industry first of a bespoke charge comparison. The member can use this information to consider which pension might be worth transferring.
Pensions are only classified as green if they have no additional key or valuable features and where charges after transferring into their Aegon pension will be lower. Pensions with guarantees, like Defined Benefit pensions, are classed as red. (Plowman’s bold)
Following a successful pilot, members have been offered the opportunity to go through a digital transfer process, rather than the previous paper-based process. This saves members’ time and money with the average time to transfer just over 2 minutes. So far over 25% of members who have gone through the bulk transfer process have gone on to explore adding further pensions via The Pension Lab tool.
Aegon has confirmed that The Pension Lab collaboration will now be extended to cover all Aegon Workplace platform products. The find and compare old pots service will be rolled out to existing schemes later this year. This means individuals don’t need to wait until Pension Dashboards are opened to the public, which is not expected before later in 2026. The RAG rating is a member-focused approach that the regulators may wish to consider for UK government pension dashboards.
Past value no guide to the future?
While lower cost usually means better value, the equation is by no means universal. Sometimes funds can appear to have no cost (deposit based schemes offering a rate not a return). Sometimes an investment costs the earth to run but delivers stellar returns (see the debate about investing in quoted investment trusts). Sometimes it’s just worth paying more to get access to the right kind of assets (whether you are investing on an ethical basis or have a view on issues such as productive finance).
My view is that we should be measuring the outcome of people’s savings based on the net returns they have got. This is tricky when people invest smaller amounts on a regular basis (rather than a lump sum). It’s hard to work out the real (internal) rate of return when the timing and incidence of payments isn’t standard and the only way to really understand what you are paying is by understand what you are getting.
Cynics would say that this just replaces “costs least” for “done best” and that past performance shouldn’t drive future decisions. They would argue that the only way to assess future value is through forward looking performance metrics.
One VFM for the boss, another for the worker?
The FCA have made it clear that they don’t want employers taking decisions on cost alone, they want them to consider value.
It would be odd if this were not the case for workers too, though it will take time for VFM to be embedded into the system to the point where RAG scores are associated with value rather than just with “money”.
For the moment, we have the odd situation where Aegon and Pension Lab can create a clearance system for workers to consolidate, based on price, while their bosses have to take a decision based on value.
We really do need a common definition of value for money which we all can use to decide on what to do with our pots!