There’s a telling sentence in Nina Blackett’s blog on VFM , published yesterday by TPR

In January 2023, we published our joint industry consultation on a value for money (VFM) framework. Now, the FCA, working with TPR and DWP, has launched a consultation on the structure of the framework.

The blog is urging the Master Trusts to get on with it. Clearly they aren’t. I sent in a detailed response to the framework last spring and a response to the consultation on the framework on 11th of this month. It was depressing, I found myself saying the same thing to the same questions. All that has really changed is that the regulators have ditched forwards looking metrics and relented a little from their hard line stance on “service”. Frankly for most people it’s outcomes not service that matters.

Time for a refresh?

Here we are in August 2024, 18 months on and we are still having the same conversations as we had in January 2023. We are still churning out the same platitudes and the language is getting ever more cliched. To take but one example, Nina refers to savers as “hardworking”,  now that’s a relative term. Are savers hard working relative to those who opt out or are we all hard working because we work? Neither contention makes much sense, but when we are asking to create a framework that sorts the hard working pension from the not so hard working pension, then we should be careful what we say. I should too, the strap of this blog is that “AgeWage makes money work as hard as you do”. Not all my readers work hard – many have saved a lifetime not to work at all.

Which brings me to my main point; after 18 months we should have nailed how to measure value. The blog admits that TPR is still looking for ways to nail service – if so, then put service to one side and measure VFM for now in terms of outcomes – let people decide on service for themselves – after all – that’s what all these service measures add up to – perception.

And if TPR is serious that Trustees should try to understand what their savers want and need, why don’t they read the surveys. Read Scottish Widows where of 1500 savers , 80% said they wanted and needed as good a pension as they could get (defining pension as a consistent income that lasted as long as they did).

Nina comments that we can value these pensions with

good-quality data allowing trustees to understand how their default arrangements perform, compared with those of their peers. And when it comes to making decisions around value, consistent, comparable data has been in short supply.

There are two sources of data to value the performance of default arrangements. The first is from the asset managers and platforms that create the performance metrics that go to factsheets and to the league tables run by Corporate Adviser. This information is what the industry has chosen to use to measure value.

The other source of data is the value of the member’s pot relative to the contributions paid to create that pot. The difference between money in and money out (time weighted) is the member’s individual performance and measures the outcome of all the risks taken (including costs and charges). The data to measure member’s actual experience is available but is not generally being used – because the industry says it is too hard to get this data.

The member data is of course core to the calculation of outcomes, Without it , there is no way of creating the Net Asset Value (the size of the pot). It exists and should be relied upon, otherwise the outcomes are unreliable. Reliability is a pretty important measure of “quality of service” IMO.

Master trusts are quite capable of measuring performance based on member outcomes rather than data supplied to them from asset and platform managers. But there is a difficulty, this data tells a story that is too close to the bone for most master trust funders (or trustees) to reveal. A deep analysis of the member data tells us which master trusts are really delivering net performance, which have data quality issues and which are simply unable to master technology needed to provide transparent metrics that are relevant to regulators, employers and “hardworking savers”.

Actually, the VFM framework is still measuring DC schemes as if they were DB. It is still ignoring individual risk and focussing on manager risk. The VFM framework is so stale that if it ever gets round to producing league tables, those tables will be a repurposing of the Combined Actuarial Performance Services (CAPS) that flourished in the 1980s and 1990s.

If we are ever to recognise the risk transfer that occurred when we moved away from risk-free defined benefits to risk-driven pots, then we will measure member rather than manager risk.

Nina , the Pensions Regulator and the master trusts will continue to circle each other. We will continue to have weekly podcasts asking everyone to recreate their version of value for money and VFM will ultimately disappear below the water as the public gets sick of the sound of it – hardworking as they are.

I of course will be happy to visit Brighton and explain all this to Nina and the VFM team, but I suspect I will be told yet again, that using member data to determine VFM is too hard for an industry struggling to provide data to dashboards.

I think I have cracked “hardworking”, it is the activity of any worker not engaged with measuring value for money.