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.

Will Hutton is on about the monarchy

Will Hutton

Columnist

It’s time the royal family got on their bikes

Images that chart the downfall of a prince who willingly sold his soul

European monarchies are hardy institutions, survivors of almost every calamity. Spain’s King Juan Carlos, for example, was forced to abdicate in 2014 over sexual infidelity and financial chicanery that should have overwhelmed him and his office. He now lives comfortably in Abu Dhabi while his son Felipe carries on the day-to-day functions of the Spanish monarchy. Monarchies have deep roots.

Despite the darkening mood of crisis enveloping the House of Windsor, there is good reason to suppose the British monarchy will similarly pull through – but profoundly changed. In fact, in the long run, the constitutional, political, social and cultural consequences could yet prove positive, setting Britain free from self-made chains against which even the royal family, some more than others, has chafed.

The now famous photograph of Andrew Mountbatten-Windsor’s haunted devastation last Thursday night leaving the Norfolk police station where he had been questioned all day betrayed the degree to which this notoriously bovine, entitled man recognised how far he had fallen. The deference he had expected as of natural right was all over for him – the trigger for the necessary reinvention of the institution he had so soiled.

For the monarchy – apex of our constitution and which legally still defines the public interest in our courts – is at once the best and worst of us. Elizabeth II, King Charles and Prince William believed and believe in duty and public service while trying to embody essential British decencies. Charles’s faith, kindness and tolerant embrace of all Britain’s diversity are evident. His and William’s use of soft power to further great causes – the environment or Ukraine – has been hard to fault. Yet simultaneously and inevitably they are standard bearers of the hereditary principle and the shadows it casts over our social structures. It could be vast ducal estates whose justification is long forgotten but which grow ever larger as a form of 21st-century feudalism – for which Sandringham and Balmoral offer a carapace of legitimacy. Or the conferring of a parallel legitimacy on private schools, with their promise of paid-for guaranteed social and economic advantage – where the royals’ kids are unthinkingly sent. It is the primacy of received pronunciation and Oxford English, the tones in which the king speaks and which we reflexively expect our leaders to echo. If they don’t they are subtly diminished; compare Keir Starmer’s flat tones to Tony Blair’s. All needs to change.

Britain is not going to become a republic. The crown’s roots are too deep

Equally, the defects of government have monarchical roots. The great constitutional radical Tom Paine could write in Rights of Man that William the Conqueror would recognise the British constitution 700 years later in 1791. Rights, he argued, are essentially dispensed not as essential rights, but as dispensations resulting from the act of conquer and Saxon defeat – with elected governments now dispensing them on the monarch’s behalf. Bewilderingly, the same critique is valid in 2026. Even now,British democracy has its particular monarchical characteristics – abundant insider executive discretion, with the people cast too frequently as petitioners.

Nor would the riddle of British government – strong with a weak centre – be a riddle for William I. The strong centre is surely provided by the king and privy council of conquering barons, he would have asserted, exercising their prerogative powers. The fiction is that ministers, constitutionally servants of the crown, are thus still coordinated. That this apparatus is now a vacuous shell matters: the defunct form obstructs the creation of something better – and is abused. Recall the three Tory privy councillors who convened a privy council meeting with Elizabeth II to prorogue parliament for five weeks at Boris Johnson’s behest in 2019.

Unless defeated in war or through some other cataclysm, Britain is not going to become a republic. The crown’s roots are too deep. Britain is likely to want to retain the crown as its titular, ceremonial head of state, with monarchical executive powers and lack of transparency stripped out, but with the Windsors soldiering on. The model will need to be much closer to more modest European monarchies, with Denmark’s a good example. There, the monarch exists to serve the people, rather than double up as the head of a feudal, aristocratic social structure. The Danes have no huge coronation ceremonies or Ruritanian state openings of parliament. The royal family’s income there is a fraction of our royal family’s and their affairs are more transparent. King Frederik and Queen Mary shop and cycle round Copenhagen, managing whatever security concerns, their kids go to state schools; he enjoys approval ratings of 84% to 87%. Danish society is much less divided and more cohesive than ours, for which the character of its monarch must be partly responsible.

Prince William certainly leans into this vision – a modern father. He will know that openness and accessibility are how the Spanish and Dutch monarchies have rehabilitated themselves after scandals. But whether he and Kate, dispatching their kids to a lavish even if local prep school, can spearhead such a transition is an open question. Coronation by acclamation as in Denmark rather than in Westminster Abbey? Live more like his people? The redefining of our monarchy is a crucial building block in any programme of national rejuvenation. A Labour government should surely see and work for this with popular support; nor is it a project that the country would entrust to the wayward hands of Reform. Imagine living in a country where the state schools were good enough for princes and princesses? Where achievement and wealth were won by what you did rather than by birth and who you knew? And whose democracy properly functioned even with a constitutional monarch? You may say I’m a dreamer – but I’m not the only one.

David Butcher says his goodbye to his appearance this week, with his assessment of what the VFM Framework is doing

“It’s a masterpiece of analytic thinking but there is zero of emotional thinking in there”.

Having spent a morning watching freestyle skiing  and listening to David, I spent the afternoon out on a walk listening for 95 minutes to Darren and Nico trying to make sense of what Robin Ellison has called a “masterpiece of dross“.

It is a very good listen with Nico doing most of the talking and Nico tagging along with good humour. The trouble for Nico is that the VFM Framework exposes everything that has been wrong with the Framework when it was announced in 2017. It is not measuring a pension , the Framework measures the accumulation of money in the  remaining 12 commercial mastertrusts that matter.

A demonic punishment awaits the DC pension that falls foul of the performance measurement and, as Nico point out, a DC pension can fall foul and go red without doing anything wrong but take a position and show conviction. Nico reckons the answer will be the CIOs of the trusts looking over their shoulders to make sure they are in line with everyone else. The alternative will be last trust standing and Nico reckons the last trust will be Nest.

The lads decide they aren’t going to answer the 42 questions but instead ramble on in a very relaxed way about how DC schemes have been measured since the GPPs got into trouble with the Competition people in 2013. The measurement has been by the disclosed charges (though fund transactional costs and the costs of investment and contribution administration don’t get a look in.

I’m not sure after 95 minutes I’m any more clear about what employers let alone savers will get from the framework. Since individuals take all the risk of things going wrong (and pleasure from them going right) it would be nice if they knew how performance worked in terms of money in and money out. Kim Gubler had suggested this a couple of weeks back.

But here I find that Nico and Darren come to the end of a cul de sac. DC savings plans whether master trust, own occ trust or GPP are not pensions. The DWP reckon that CDC will provide up to 60% more pension which makes the question of VFM for DC pensions a bit redundant. CDC doesn’t get a mention in the 95 minutes and I did wait till the very end to make sure I didn’t miss a conversation about it.

Nico and Darren’s final view of the VFM Framework is that it has been made redundant by the Pension Schemes Bill that will demand of DC schemes “default” retirement income.  A quick search of my blogs takes me back to January 2017  at which point the FCA was pursuing IGCs for a consistent way of measuring their performance and service.

In the nine years since we have seen the two regulators and the DWP looking for ways to get a satisfactory way to impose a mandatory measurement since the IGCs could find no consistent way to assess (other than that value was good).

I agree with Nico and Darren’s view that the VFM Framework is of no value since this Government has demanded workplace savings evolve to pensions.

It is very hard to work out what good the VFM Framework will do . Well said Nico and Darren for calling it redundant. Well done Butcher for nailing the Framework’s shortfall in emotional thinking.

The money is rolling in and pots are swelling fast

People’s Pension (run by People’s Partnership) has hit £40bn and is on the same trajectory as Nest.

You may have noticed that between them, Nest and People’s Pension have £100bn of our savings.

There is a great opportunity for these organisations to invest their 20 million pots for growth. Nest has said that it will be introducing within the next 18 months a default for its users that will take them through to 85 (when they’ll find themselves in an annuity – insured by Rothsay).

Five years ago it was boasting that its money was invested around the world and pointing out to those who’d watch (only 147 watches ) that 4.4% of its money managed was invested in the UK. Back then the message was different than today.

Life  at People’s Pension’s and the Nest investment team is becoming more important. So is investment in the UK. This year, Mark Fawcett told us (I’m one) 13m Nest savers that our money was being directed more to the UK

I am bored by politicians and commentators arguing about mandation, the fact is that DC pensions are investing more in UK growth and I hope that all pensions will do the same, that includes DB schemes that choose to carry on and CDC schemes which are just starting out.

More than a fifth of that £60m invested by Nest is now invested in UK, that’s five times more as a slice of the cake than five years ago.

It is not just that we feel a little queasy about United States economic policy (hmm), it’s that we want our money to work for the UK. The UK stock market is outperforming America’s and we no longer have a currency that cannot keep up with the mighty dollar. These are incidental but do at least make us feel easier about investing in the growth of Britain.

I don’t want to sound jingoistic , I am not  right wing in my political views but I do think that the big funded pensions  at LGPS and USS can now be joined by Nest and People’s and not far behind them are other master trusts over £25bn (Lifesight and L&G).

If you look at my blogs promoted below, you’ll see I’ve been calling on Nest to make our money work harder for fourteen years. At last I think I can bring good news.

There is a huge weight of money in GPPs and legacy personal pensions (some still in with profits) that needs to consolidate to pension funds that work as hard as the big master trusts.

Default funds should not and will not (if TPR and FCA get their way) be backwaters where people’s money sit ignored. Consolidation should mean that every pound in pensions is treated as important, particularly money on which members have taken no decision. That is the task of CDC where all money goes into a single fund.

Soon we will see our workplace pensions alongside our state pensions and DB pensions yet to come. CDC schemes will join too (starting with Royal Mail’s)

Over time I expect to see the big master trusts, DB plans and CDC plans looking to savers as variants on one thing – their pension.

Footnote on CDC

To finish I will print an announcement from Royal Mail’s Collective Plan (CDC) which will be fantastic news to the posties who are members of it

I look forward to the day that we all think of our workplace pensions in terms of the benefits we get – like this.

If you look at my blogs promoted below, you’ll see I’ve been calling on Nest to make our money work harder for fourteen years. At last I think I can bring good news.