I wish these people could listen to what we’ve been saying these last 7 years

This is a comment from People’s CEU, Patrick Heath-Lay of his initiative 4£4 – a way of measuring VFM. You can read the whole statement here.

It’s become increasingly clear that the issue Value for Money is going to be the next significant challenge for the pensions sector. Hosted by Torsten Bell MP Minister for Pensions, I was delighted to Co-Chair an engaging roundtable yesterday with key pension providers, regulators, DWP officials and Pensions UK to discuss how we need to get VFM right for savers. Crucially, we heard from the excellent Kirby Rappell, CFA from SuperRatings about lessons learned from Australia. We discussed metrics, the importance of independent assessment with the ‘prize’ of larger pots for savers.

The event marked the first public discussion of the ‘Pound for Pound’ (‘£4£’) initiative – a pilot group of providers brought together by People’s Pension and yesterday’s discussion underlines how collaboration is going to be key to getting this right.

I’m confused. Value for Money is about what people are getting from their pension.

Can we stop saying that the prize of independent assessment is “larger pots for savers“?

If you ask any ordinary person how to measure the pension they are getting – they will point to the deal they have got on the money they have paid and if we are getting people into an understanding of pensions as regular income which lasts as long as we do, then we’ve got to stop talking about measurement in terms of “larger pots“.

What appears to have happened is that “independent assessment” is being organised by People’s Pension , along with a group of providers who have turned to universal answer to all our questions – Australia. I am not getting the sense of independent assessment. Data is impartial – it is what it is – independent assessment suggests “interpretation” – it needn’t, this data is really easy to understand . It cannot got be wrong!

I’m confused again. For the past 7 years, my firm has been producing reports which show how individuals or groups of savers have done by measuring how people have done by comparing the money they’ve put aside, the time it’s been put aside for and what’s happened to that money while it’s been away in other people’s hands.

The news from the press release , conveyed in Professional Pensions and Pension Age is that Pound for Pound will not measure charges as Clearglass does but…

instead assess performance through broader value-based metrics, understanding the practicalities of a process that will shift market conversations away from cost towards value.

The conversations about cost are hugely important – it’s just they aren’t defining value for money. They never were. I have worked with two companies who defined cost so that sophisticated investors could work out what you paid for deals, it did not talk to the investors of the success of the deal. Institutional people have confused everyone by concerning us with basis point costs , that never what people thought of when they heard VFM.

The reason that Chris Sier’s Clearglass exists is to make sure institutional investors know what they are paying in costs relative to investment with no charge. This is entirely legitimate and is work I was involved with through an organisation run by a lady called Emmy Labovitch who ran  Novarca in the UK, she is a NED to the PPF and she reminded that the more money you pay for something does not increase the more value. The value you get from something is not what Chris Sier measures and the only way to tell what savers get by way of value in savings is by looking at the internal rate of return you have got.

I have had several meetings with People’s Pension explaining how to measure the returns they are giving each saver and groups of savers. I have been sent away with a lecture that VFM is about charges. They are now coming round to the conclusion that value for money is about performance. I am sorry to be right.

This high powered discussion should consult with AgeWage as we have a system of scoring everyone’s individual performance by comparing how someone has done compared how the average person would have scored if they had been in the same situation. A score of below 50 is poor and above 50 is good, 50 matches the benchmark and is standard. It measures the data that is available to those who hold unit holdings over time – the administrators of DC savings.

Of course there are more sophisticated things you can do to assess whether high levels of risk are being taken with money (risk adjusted) but everyone is a sophistication compared with what actually happened. Until we can give people what actually with their money I think we are selling them short when it comes to value for money.

I’ve got to thank Hymans Robertson for providing me a benchmark to work out what the average would be and give me benchmarks for older and younger people. But this is more sophistication. The basic value for money measure we worked out in 2018 and still use today is available to the £4£ bunch, I’d be happy to do a demonstration of how easy it is to measure every individual their value for money or groups for that matter.

I think I was in a windowless room  DWP’s Caxton House