Another group of worthy souls worry about the market uncertainty that DC schemes find themselves in (report here from Corporate Adviser).

Could I throw a spanner in the wheels and suggest that what those in DC schemes want is some certainty of what they get. The argument that there is against VFM reporting is that it leads to herding – isn’t herding a good thing? So long as the herding isn’t into rubbish investment, surely the certainty of income from a lifetime’s saving seems a good thing.

What doesn’t seem a good thing is a fight to get to  the top of the VFM ladder only to find the rungs disappearing beneath you and you crashing to the floor.

The difficulty with thinking about performance is that it leads to questions about what happened in the past 1, 3 and 5 years and here there is always uncertainty. Can you think of any year where there has not been a geopolitical threat or a threat from the latest development in technology and worst of all, the threat of a financial collapse as happened in 2008.

The problem with DC is that it offers those who saving into pots no protection from market uncertainty. Our pots are exposed to whatever happened in the markets and our pensions (if we get round to taking them) are prey to the timing of our withdrawals or annuity purchase.

The sentiment of those in this master trust forum is summed us by this statement from Lewis Daley  of Royal London, a GPP provider

“Boiling something like this down to a forward-looking league table format is littered with the risk of hasty, uninformed decisions. What needs to occur is the demonstration of confidence on an ongoing basis that there’s been improvements [in a pension scheme], that you can provide conviction and confidence, as opposed to just presenting a really
good shiny number.”

Yes, anyone near retirement does their own value for money calculation and for most of us the question is “have I got the money to buy the things I need for the rest of my life?”

The answer may be “yes” today and “no” in a couple of month’s time. That’s market uncertainty for you.

Most mature people have become fed up with trying to work out what they’ll get in retirement from a DC pot. I mean by “mature” people who follow the size of their pot from week to week and even day to day. It doesn’t do the dodgy ticker that much good.

There have to be better ways to make DC pots something we can be confident about and knowing that I’m top of the ladder this year is like the belief that Leicester would win the Premier League again.

People have no idea what they got for the contributions they paid (and when they paid them). There is no mechanism to tell them their internal rate of return, let alone how that did against the average bloke (or the herd as we call it now).

But that is what people are owed. Reporting of the value they’ve got for their money. The only way they can do that going forward is by measuring the pension they’ve bought from paying into a collective fund that pays out a collective return.

There is talk of measuring decumulation in this week’s revised timeline for the Pension Scheme Act’s reforms.  But it looks a long way away.  Till we get news on the pensions we’re awaiting,  these forums will mean nothing! Markets are too uncertain and pensions too hard to calculate – we’re taking all the risk from this DC and have no idea of VFM.