Pension Plowman – Chair of AgeWage

Most of us have some benefits at retirement due to us from savings we and our employer have made on our behalf.

A record of the amounts paid and what they bought by way of units in funds is held by administrators and can be accessed by request. We have been accessing this information for trustees, employers and for savers since 2018 and we do something very simple but very effective. We tell those interested the individual return that a series of purchases creates. This return is an internal rate of return but it is indisputable. We can tell you whether your contributions are 3% since you started or 5% or 7% – there are numbers that stretch much higher and they are indisputable because they are based on the record of your contributions. There is no opinion here, there is only the fact of what is held on record.

But it’s not much good if the amount we hold is simply a number, you need it to be compared with something else – a benchmark – to understand whether you are doing well or badly. We have constructed a fund we call the benchmark index. We are grateful to Morningstar for providing us with early data and Hymans Robertson for providing us with more recent data which explains the typical return that people get from the contributions you and others made for you.

If this index shows that you would have got more from investing in the index than you got from your investment then we mark your return as below average (it gets a mark below 50) and if your investment did better than the index did, you get a higher than average mark (see below), This person got very good VFM on their accumulating pot which was marked 76. We did that analysis in 2020 – I am glad to say that my score is slightly higher today.

The approach is used by employers, trustees, personal pension providers and individuals. It is an infallible way to tell if an individual’s pot or a group of pots are providing value. We can produce reports for employers, trustees and providers showing how different groups of savers are doing – low v high pots, old v young savers, active v deferred and so on.

And we can look at the volatility in the returns we are given and give another analysis based on value at risk. This is for more sophisticated investors but it is still infallible and explainable as it simply relies on data given by us, not opinion.

It is important to savers to know if they are doing well but it is also important to providers (commercially) and trustees and IGCs (from a fiduciary respect).

We are open to talk to, we have experts who would be happy to open our work to wider appreciation, we charge very little for analytics and if organisations such as £4£ would like to licence our approach , we would be delighted to explore the opportunity.

If there is demand, we will reopen to individuals. We would like to think that in due course a VFM analysis will be a service accessible from the dashboard so that no sooner have you got detail of your pot, then you have an option to see if it’s done ok since you put money in.

And now we are working on whether decumulation funds look value for money based on the risk and return they offer to savers. But that’s another story.

The pension plowman is available for a discussion and demonstration on henry@agewage.com