Sadly, too often just the poorest people who need their investments to work the hardest end up in the worst-performing funds for want of financial advice.
Furthermore, the lowest paid often receive “the worst deal when it comes to charges because of the way almost all contract-based and some master trusts operate,” says Charles Goodman, partner at Employee Benefits Collective.
Without the help of financial advisers, used by a privileged few, it is often a complete lottery whether 11mn people in workplace pensions will end up with a good pension or a dud. The odds are that the ordinary consumer with little cash to spare will not enjoy stellar and consistent performance.
To improve the situation, the FCA and TPR should shine a light on investment performance comparison. They have the wrong priorities and are too occupied with charges and governance rather than investment performance.
Admittedly, such comparisons are difficult but regulators do not seem hugely bothered by poor investment outcomes as long as the investments are not actually fraudulent or against the rules. I suspect 'value for money' will be another tick-box exercise. Yet, we rarely see the nuclear option of shutting down the losing laggards.
Another worry is the great proliferation of almost misleading benchmarks – there is always one that will show off your fund to the best advantage. Indeed, one wealth manager told me privately it had stopped using a leading benchmark provider; it charged them a huge half a million pounds to use it.
Without standard independent measurement, with all parties using the same benchmark, financial confidence is undermined. Too many of us are completely in the dark about the shoddy performance and wide disparity of many workplaces pension funds, for example.
A job for the regulator?
My solution to end this opaque mess and the maze of confusing benchmarks (to the layperson at least) is for a regulator to move into investment performance measurement.
It is basic financial ‘hygiene’. Even the smallest local takeaway is subject to stringent hygiene rules. A local government department often provides a 1-to-5-star grading of their hygiene. Reliable investment performance monitoring is just as vital to pensions outcomes for more than 11mn people.
DC master trusts are only in their infancy in the UK. We have much to learn from the Dutch who are often ahead of us with their collective defined contribution, with a narrower range of performance outcomes. These do not come with a guarantee but are less of a lottery.
