This document discusses value for money (VFM) in pensions from both the consumer and provider perspectives. It outlines the evolution of VFM reporting and regulation over time. It also discusses using data and benchmarks to provide consumers personalized VFM scores comparing their actual returns to synthetic returns from investing in the benchmark. The document proposes initiatives to increase consumer engagement around VFM, retirement options, and oversight through an delegated model. It provides an example of potential VFM scoring and outcomes for an average supermarket employee over 20 to 80 years.

1. The value of our
money
September 2019
WeWork
workshop

2. What we’ll be thinking about today
• Understanding value for money from the consumer's
view point
• Understanding value for money from a scheme/plan's
point of view
• Can we engage consumers in a responsible way?
• Where are we going on DC governance?

3. Value for money from the consumer’s
point of view

4. Evolution of VFM inside pensions
2014 OFT report
2016 First round of IGC Chair Statements (FCA)
2017 NMG report for IGCs surprised that….
Perceptions of what value for money means focus around ‘good returns’: In the
online survey this was the top rated attribute; the workshops revealed this is much
broader than investment returns but is perceived by members as achieving a good
outcome at retirement.
2018- introduction of VFM reporting in DC Trustee statements (DWP/tPR)
2019 FCA review – W&P Select call for an..
"agreed definition of what is meant by value for money in the pensions industry.
Although individual schemes will need to vary their value for money goals, without
agreed definitions it is not possible to make effective comparisons".

5. People need to understand their
pensions
Daily Mirror – August 20th 2019
Financial Times - June 2017

6. VFM for the consumer
The amount out against the amount in

7. VFM now embedded into popular
culture
Talk sport
2019

8. Understanding VFM from the
provider’s point of view

9. Pioneering work by NAO (2013)

10. Evolution of VFM inside pensions
2014 OFT report
2016 First round of IGC Chair Statements (FCA)
2017 NMG report for IGCs surprised that….
Perceptions of what value for money means focus around ‘good returns’: In the
online survey this was the top rated attribute; the workshops revealed this is much
broader than investment returns but is perceived by members as achieving a good
outcome at retirement.
2018- introduction of VFM reporting in DC Trustee statements (DWP/tPR)
2019 FCA review – W&P Select call for an..
"agreed definition of what is meant by value for money in the pensions industry.
Although individual schemes will need to vary their value for money goals, without
agreed definitions it is not possible to make effective comparisons".

11. Regulators struggle for perspective
Sandy Guest – to IFOA - 2014

12. And actuaries find
“Opportunity in complexity”
Sandy Guest – IFOA -2014

13. A typical qualitative assessment
Aviva IGC
chair statement 2019

14. Can we engage consumers in a
responsible way?

15. Personalized
Meaningful
Accessible
Value for money

16. Can simplicity be supported?

17. The data journey
People using GDPR and DPA rights (to their data held in machine readable format)
Access to contribution histories and pot value (NAV) creates an Internal rate of return
AgeWage Morningstar index plots average fund price track since 1980
Investing contribution histories in Morningstar Index provides synthetic (benchmark) IRR
Comparing actual v synthetic IRR (with allowances for charges) produces a VFM quant score

18. Benchmark
• The Benchmark consists of Morningstar Category Averages
• The Benchmark has weightings which represent the
average over the period 1980 – 2019 of funds utilised for
DC pension saving (including insurance products)
• It is broadly 80% equity and 20% debt.
• But the weightings within these broad classifications varies
of time
• From 80% UK Equity and 20% Gilt in 1980 to 51% UK equity,
29% world, 5% ILG and 15% UK debt in 2019.
• These weights may be adjusted in the light of allocations
observed in the member data supplied to us.
• The Benchmark is meant to capture the opportunity set
available and used by pension savers.

19. Risk and Strategies
• The essence of good fund management is risk
evaluation and management.
• It is recognition that risk assessment entails the
possibility that more things may happen than will.
• Good fund management seeks to identify and avoid or
mitigate those that will.
• The use of an IRR captures those risks which did occur
– it is a risk experienced rate of return.
• This means that is it appropriate for the evaluation of
strategies, including those which reflect explicit risk
preferences, such as life styling.

20. Returns vary – VFM needn’t
This chart shows the volatility of the benchmark IRR over rolling 20 year periods
If a saver gets the benchmark return for his money – he will get a 50 score

21. Where are we going on DC
governance?

22. What savers want from “governance”
Trusted search (for independent expertise)
Assurance on Value for money
Clarity on saving and spending options
(AgeWage Ipsos Mori research Q2 2019)

23. Trusted search for pension expertise
• Finding the right IFA(s)
• Reward
• Performance reviews
• Staff/member feedback
We need a
DELEGATED MODEL OF ONGOING OVERSIGHT
-Ruston Smith
.

24. Assurance on value for money
Henrytapper.com

25. AgeWage would like to work
with IGCs , trustees, GCs
platforms and sponsors.
We’d like to offer savers
VFM scores
Assurance on
Value for money

26. Clarity on options at retirement

29. Help on retirement choices
You want to wait and see
You want drawdown but
can manage it yourself
You want a certain income
that lasts as long as you do
You want
drawdown and
want an IFA

30. How can fiduciaries help?

33. VFM for supermarket colleagues
• Average supermarket employee
• Assumes an 8% contribution on £0-14,000 over 20 years
• Wage inflation assumed to be 2%
AgeWage
Score IRR Pot Value Total Investment
20 6% 34k 18.5k
50 8% 42k 18.5k
80 10% 53k 18.5k

34. Thanks for the chance to talk
Any questions?