Corporate Adviser reports on Guy Opperman‘s unflattering report on TPR and FCA’s VFM initiative.

How can we feel good about VFM? Building up money in a DC pot is not as interesting as it was 14 years ago when we started saving through auto-enrolment. At that point people entered into saving being sold that they would build up a pot that would be converted automatically to an annuity if they did nothing.

The only question that should have been on employer’s minds was how much money would be in that pot and they needed guidance on choice of workplace pension DC provider. If they made no decision, they defaulted into Nest and nearly a million employers did.

“Pension VFM” was set up to judge  outcomes of investment in terms of  growth achieved on pots. The result of  testing could have been a  performance league table. That would have been simple enough for us.

But simple doesn’t work for the pension industry who who confuse transparency with complexity and end up with the mess that they’ve passed to TPR and FCA.

I’m reminded of what Glyn Jenkins told me “being simple is hard” and what started out as a test on how individual savers did has turned into a mammoth exercise in complexity that will keep a large part of Brighton and the East End of London’s workforces in a job for some time to come.

I’ve spoken with Guy Opperman about VFM being a potential train crash. He is consistent in this belief and here it is rolled out at a recent conference and in the digital pages of Corporate Adviser.

Opperman was critical of the fact that schemes would be submitting their own data, asking for a show of hands of who in the audience thought a scheme CEO would allow reporting that would give them a ‘red’ rating to be submitted without mitigation; none thought so.

“I fear that this is a slow-moving, expensive potential car crash on the horizon,” he says.

Not so much a train crash but more a repeat of the failure of the independent governance committees which are now almost forgotten as the way to determine how workplace pension personal pensions did for VFM. I got one this week from Royal London, the only provider who seem to consider it important enough to give their’s some airing.

It may be that something will come out of the VFM reporting but I can’t see what. The consolidation of failing master trusts (and a few who’ve delivered) will happen by 2030. Scale is a much better judge of future capacity than past performance. Those like SEI and Lewis Investment mastertrusts that have performed well will struggle to get involved in the kind of investments the Mansion House accord has in mind.

For Guy Opperman, the problem is of self-promotion rather than honesty about achieved VFM

“The one key flaw with VfM is that we are asking the schemes to mark their own homework, and that’s fatal.”

He went on to insist that this is the opposite approach of companies that the VfM system may be looking to emulate, such as in Australia.

I’d agree that people are much more turned on in Australia to their savings because of league tables and there’s no doubt that were CAPAdata given the job of marking scorecards, we’d have something that individual savers could relate to.

But I can’t see many people judging their “pension” going forward by the size of their pot but by the amount of wage in retirement that they’ll get.

If VFM will fail on one single thing it will be relevance. VFM will not be relevant to employers who will have moved in and even more to savers. If we want to see engagement, lets look at our interest in the amount of pension from the state pension- pension increases are very relevant indeed.

In truth, we should and could have had a system that required VFM to be made public in terms of performance from the outset of auto-enrolment in 2012. I set up the “choose your pension” service for employers in 2013 to help employers work out VFM. The IGCs began publishing in 2016 and we started talking about CFM for master trusts in 2017 (with Opperman).

Now, a decade on, the relevance of accumulation in DC pots has been overtaken by measurement of pension outcomes. The VFM battle between CDC and DC outcomes started to hot up when DWP claimed that CDC paid 60% more pension than the workplace DC pension. That comparison has been criticised but no one has disputed the work of Aon, WTW, Hymans, LCP and the PPI whose estimate of CDC outcomes were collectively judged to be at least 50% more and with the PPI 75% more.

This kind of test for VFM makes sense to employers and their staff and though it doesn’t pleas DC providers and consultants is the measure of VFM that is emerging from the train crash that VFM has already become.