Henry Tapper shares his thoughts on how IGCs could provide value for money statements that people wanted to read
The independent governance committees (IGCs) have reported for the fourth time and I've read each chair's statement. Most have been well-written, some have effectively improved member outcomes and most have found a way to report on policyholder value for money.
But I doubt outside a hard-core of governance activists, few will read the reports in depth. Only Virgin Money sends out hard copies of reports to policyholders, while those IGCs which have surveyed members report member awareness of their IGC as "disappointing".
Speaking with co-workers at our WeWork office, I don't find much grounds for optimism. When we asked one millennial whether she thought she was getting value from her pension, she sceptically replied: "you see the money leave your payslip, then you wait 40 years to get the bad news".
This value question is - to use a Quietroom phrase - too high up the ladder of abstraction. People can't get their head around what a balanced scorecard of pension attributes might be.
Research by NMG shows people want a lot of money when they stop working. - That's what people think of as value for their money.
People do want to know how their money is getting on. They want the information that Ruston Smith is delivering on his simple two-pager. They want to know what is in their pension account, what it's grown by and what's come out in charges. Ruston calls it a pension till receipt. Till receipts are at the bottom of the ladder of abstraction.
What could be radical about a pension till receipt is that it delivers in seconds information that is personally relevant - what you've bought and what you've paid for it.
Value for money reporting needs to be that personally relevant for it to catch on. I've been thinking how IGCs could provide value for money statements that people wanted to read and have concluded that you need something as simple as a single number.
It could tell you what value you've got for your money. How? By comparing the return you've got from your contributions with the return from another fund - a typical fund - a benchmark.
Supposing I told you that you'd beaten 80 out of 100 other investors, you'd feel good about yourself, you'd go hug your pension manager. And if you'd only beaten 20 - I'd expect to see you cursing your luck or your pension manager. Value for money scoring needs to be that simple.
If I were able to tell you how your pot had fared on a scale of 0-100, you'd want to know. That's because I'm down the bottom of that ladder. I'd rather know the tough truth than being told once again "in the opinion of your IGC, you have been receiving good value for money".
You may think it impractical to issue value for money scores for workplace pensions. I'd disagree. NEST has seven million pots, People's Pension and Now Pensions have two million each. Many IGCs have responsibility for more than 1m policies. Modern technology means that everyone could get a value for money score on their next pension statement with very little work.
A single system of value for money scoring which used the same benchmark and the same algorithmic calibration could allow people to quickly value not just their current workplace pension, but all their other pensions.
Of course, that's not the end of the story. If it was, pension experts should be writing to the editor about GARs, terminal bonuses, cliff-edge exit penalties, life cover, waiver of premium not to mention the many product features we've bought (but seldom used). And yes - these are all ignored in a single number value for money scoring system.
But a score is the portal to engagement - and people seldom stop at the door. If an IGC report started with a statement of the value someone has got for their money, you'd hope they might go on and look around inside.
Henry Tapper is CEO of AgeWage and director at First Actuarial
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