An elderly actuary pings me a message about the VFM Framework
I joked about the VfM framework before…
However there is an alternative way of looking at it.Here is how it might improve outcomes.1. It will be troublesome to produce and annoying for many trustees and providers to deal with. Alongside the other new demands, it will push the many legacy closed “pension” arrangements to consolidate somehow. Much faster.2. It will push all AE default arrangements to invest broadly similarly. As the basis of AE is inertia combined with joining being the only way to get the employer’s contribution, and individuals don’t have any choice where there money goes, there is no good reason why their money should be invested differently depending what their employer choses.A sledgehammer to crack a couple of nuts. But let’s get it done and move on to VfM on decumulation.Or more radical changes.
I don’t know if my actuarial friend had read what Nico and Darren had said over 95 minutes on their podcast
But his/her thinking is along the lines of Nico and Darren in that there really isn’t much to choose between master trusts when they get to a certain size. This is the problem they have in Australia where the systemic problem that Supers don’t pay retirement income is ignored as the press argue about which Super will deliver more in years to come.
My friend is right to argue that we should shift our thinking to more radical changes to the DC system so that people get pensions and not pots when they need their money back.
I am not against flex and fix as advocated by Nest who will offer flexibility till your 85th birthday and then fixed income with no flexibility. If that’s the end game for a saver in a master trust – good. Good that people have an income at 85 for as long as they need it. I have said this much on this blog for a year, since Paul Todd told us about it.
But while “Nest’s flex and fix” approach is as good as a large DC scheme gets as a way to provide DC pensions, it is not as good as being in a CDC for the whole of your life.
I hope that people will remember the DWP and HMT’s statements on the value we will get for our money from CDC compared with DC
I can see a future for Nest and People’s and I can see some master trusts getting to scale and surviving . Insurance companies and pension consultancies may continue to play in the future. Consultancies because of the hold they have over large companies who rely on them to manage the end game of their DB schemes . Insurance companies have a strong hold on the large part of DB schemes who want to buy-out and Insurance companies have massive legacy books of personal pensions.
The insurance will have annuities as an endgame and flex and fix sees the 85 year olds buying their annuities. The consultancies such as WTW, Aon and Mercer will find retirement CDC and maybe whole of life CDC worthwhile.
My friend is right to point out that the only Framework we will need is the VFM the pensioners and annuitants get. DC will have to point to the freedom of drawdown if it is to compete against one CDC. It will struggle, at least with employers who care.
Meanwhile, I can’t see much but consolidation for the smaller master trusts and the GPPs. As Nico and Darren point out – you don’t need a VFM Framework to have a consolidation happening, you probably need a scale rule and you have it in the Pension Schemes Bill. When that Bill is enacted in the next few weeks, any point of the VFM Framework disappears.
And Pension Dashboards will show pensions not pots. The end for master trusts is not imminent, but their importance to the nation’s thinking will diminish as people think of pensions as what they’re saving for.