Professional March 2020

Reward

A waste of time?

Henry Tapper, chief executive officer of AgeWage, considers the value of PGCs

T here are rather more than one million employers in the UK participating in workplace pension schemes. The vast majority participate in either a master trust, now authorised by The Pensions Regulator, or a group personal pension (GPP) regulated by the Financial Conduct Authority (FCA). Master trusts are overseen by trustees, and GPPs by independent governance committees (IGCs). Both trustees and IGCs are regulated so there’s an argument to say that an employer needs another layer of governance as much as your computer needs another firewall! This article asks two questions: Do pension governance committees (PGCs) set up by employers protect staff? And do they protect the employer’s interest? Staff saving into workplace pensions can assume a level of competence from the provider to collect and allocate contributions, provide access to information on request (usually these days via an on-line portal) and to offer a coherent choice of funds, or – where there is not choice – a reason why. If the remit of a PGC was no more than to check that the scheme was operating properly, it could be argued that the time and expense of running the PGC cannot be justified. I have sat on several PGCs and felt that we did little but tick boxes that could have been ticked by payroll – auto- enrolment compliance is a payroll function. But in operating a workplace pension, an employer is taking money from earnings that may not be delivered back for forty years. Meanwhile, that money is in the charge of an organisation ‘chosen’ by the employer. The pension contribution is an employee benefit and has a cost to it. Eventually, staff will become interested in

what has happened to their money and have a right to ask if they have had value from it while it’s been lost to them. Though the answer is something that PGCs should be striving to give, they run into major headwinds. How do you determine the return on investment of a pension savings pot; and what do you compare it with to determine whether that return is good or bad? ...quantifiable indicators, such as value-for-money scores ... Surprisingly, if you ask the manager of your workplace pension for a report informing of the pension pots into which employer and employee contributions have been invested, there is no way of getting a coherent answer. In one of his last reports as chair of the Work and Pensions Select Committee, Frank Field called for a single measure of value for money. In practice, creating one is not hard, you simply need a way of extracting a data file from a provider’s record keeping system that tells you the history of contributions made for a saver and the value of the pot. ‘Reinvesting’ in a benchmark fund gives you a meaningful comparator, and with a simple algorithm you can turn the resulting calculation into an Experian-style value for money score that can be applied pretty-well universally. Which returns me to PGCs. The reality is that they do not have quantifiable measures that render providers accountable for what has happened, but subjective measures set by providers or consultants that suppose what will happen

in the future. Forward-looking measures are usually based on promises, backward- looking measures are more accountable. To protect members and to ensure the workplace pension is in the employer’s interest, PGCs need to have quantifiable indicators, such as value-for-money scores that are granular enough to be relevant to each saver. Unfortunately, not only do most providers (and consultants) feel happy to be palmed off by speculative promises about the future, they are also prepared to accept generalised data on performance that is meaningless to individual savers as it doesn’t tell them how they have done. Indeed, much of the data I supplied (as a provider) and reviewed (as a consultant) told me nothing at all. Although defined contribution workplace pensions are different for each individual saver, PGCs are required to view governance measures at scheme level and have no way of drilling into the granularity of personal experience. I have only been to a handful of PGC meetings which really addressed whether the provider was giving value for the employer’s and saver’s money, but insurers are beginning to wake up to ‘big data’. The idea behind ‘open finance’ is to allow data to be shared and data protection rules mean that people have the right to their data in machine-readable format. While employers participating in multi- employer schemes may not have the right to personal data, they do have the right to anonymised data at individual level. It is only when employers start demanding that data from their providers that their PGCs will start delivering value for the resource they expend. Which is a long way-round to saying that most PGCs are currently a waste of time. n

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| Professional in Payroll, Pensions and Reward |

Issue 58 | March 2020

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