The nonsense of pensions VFM for the consumer (As devised by some “expert” or other.
The pensions industry has struggled with the idea of Value for Money for the consumer. I can’t remember who produced this infographic but it demonstrates the morass it fell into!
Yesterday , I published an account by Guy Opperman of VFM as it has emerged long after he says he had the idea though I think we’ve forgotten over time what the bright idea was.
He did the job of bringing VFM to parliament’s attention but did not anticipate how it would move from a measure helping employers and savers measure the success of their savings to a means for regulators to narrow down sources of workplace saving.
I got an irritated former regulator contact me last night, complaining that I was unfair on regulators . If I seemed critical , I do apologise. It is not the Pensions Regulator or the FCA that have landed us with this system of VFM, it is (as Opperman says) a systemic problem.
My correspondent says that something good will come out of the mess…
The … thing about VfM is that industry and advisors love it. They make more money.
By dragging out VfM on accumulation, adding the service nonsense, asset managers avoided DWP (aka Guy) himself looking at drawdown charges.And advisors saw easy money.Hopefully we will get to 10 commercial providers at most and very few advisors.Then Value for money will be cracked.
What VFM has become , to my correspondent’s eyes, is a system of decumulation he calls drawdown and the savings industry calls Guided Retirement Pathways or better “default decumulation +annuity” or better still “flex and fix” which I suspect came from the brain of previous pensions minister Steve Webb.
Either way, a few advisers will devise the drawdown out of the Pensions Bill and most won’t. Most small schemes, whether commercial and multi-employer or “own occ” will find the business of VFM too hard and precarious . If Lloyds have said they’ll pack in their multi billion staff scheme to get Scottish Widows’ master trust towards scale, then watch out every other small DC scheme.
What will emerge will be more than a few multi-employer DC schemes. There will also a few multi-employer CDC schemes and they will be set the task of offering pensions. The CDC will offer pensions like DB did and DC will offer individuals the freedom that Osborne brought them and that will be the choice for the employers.
I think Government and its regulators will not allow the proliferation of CDC in the way DC occupational schemes, GPPS and SIPPs have multiplied over the past 40 years.
To get to a consolidated world describe by my correspondent, employers must recognise that the regulation of their schemes will now be based on outcomes – VFM. It will be a traffic light system that will be arbitrary and almost certainly unfair – but it will spell, as my correspondent said, a contraction of an overblown pension industry which at one time meant the Pension Regulator counted over 40,000 DC schemes under its regulation.
The bottom line is whether the retail DC schemes or the institutional CDC schemes will live happily side by side. I suspect that ultimately the Retirement CDC will gradually turn DC master trusts into institutional CDC plans as everybody realises that all but a few of us have no use for pension freedom.
There will be a small but thriving SIPP industry for those who want out of institutional pensions and they will see VFM in having their own fund, but SIPPs (formerly known as personal pensions) will be for the wealthy , the risk-takers and those who live their lives – self-employed!