\u2018Unrealistic expectations\u2019 warning on pension scheme value assessments<\/a><\/p>\nBut what seems perfectly sensible at a distance becomes deeply suspect when examined in more detail. The big flaws in the proposals are the inevitable doubt over what constitutes value for money, a question mark over the people put in charge of making those judgments, and the staggering complexity of the rules governing it all.<\/p>\n
A cornflake\u2019s salt content is a measurable and incontrovertible thing. A pension scheme\u2019s value for money is unknowable till decades into the future. Yes, higher fees might be a price worth paying, but only if the scheme assets more than outpace the higher costs over 50 years.<\/p>\n
That has led to regulators agreeing to allow schemes to include assumptions about the future performance of asset classes in their calculations. So-called \u201cfuture-looking metrics\u201d or FLMs are to be allowed, alongside backward-looking numbers based on that uncheatable thing, actual performance.<\/p>\n
There doesn\u2019t seem to be anything in the rules to prevent schemes switching asset allocation to spicier things such as private equity or indeed crypto, plugging some optimistic future return assumptions into their models, and bingo! A scheme in danger of a red or amber rating gets green instead, or even dark green. The policymakers have managed to make things even more complicated by proposing two shades of green.<\/p>\n
Worse still, the scoring decisions are to be made not by independent arbiters but the pension schemes themselves. Trustees (and in the case of contract-based schemes run by insurers, scheme governance committees) call the shots. This is a classic case of schemes marking their own homework.<\/p>\n
These people want to do right by members but they are not paragons. Who is not going to be tempted to take an optimistic view or make a convenient asset allocation decision rather than endure the shame of labelling themselves as red \u2014 a score likely to lead to a scheme wind-up?<\/p>\n
Unlike in Australia, where regulators of its more mature superannuation system set the benchmarks against which schemes are measured, Britain is allowing schemes to set their own performance yardsticks.<\/p>\n
Pension experts focused on what\u2019s good for members are rightly starting to question some of this. Renny Biggins, a policy official at the Investing and Saving Alliance, applauds the policy goal but says the scale and complexity of what is proposed is \u201cquite simply immense\u201d. He says: \u201cMistakes will be made, incorrect data will be used, wrong metrics will be reported, wrong assumptions will be made and, ultimately, incorrect [traffic light] ratings will be applied.\u201d<\/p>\n
Lisa Picardo, a senior executive at the pensions consolidator PensionBee, likens forward looking metrics to \u201ccrystal ball gazing\u201d. She says: \u201cFor years, the regulators have rightly constrained projections in mass-market investments because optimistic forecasts can mislead.\u201d Yet now they seemed to be promoting them. She explicitly suggests that they could be used as \u201ca lever for schemes to artificially uplift their scores by including private markets\u201d.<\/p>\n
Private assets \u2014 both private equity and private credit \u2014 are showing signs of serious stress after years of strong returns, yet it is now that regulators think it a good idea for the schemes of ordinary savers to be pressured into pushing deeper into them. Rachel Reeves has, for now, stopped short of mandation, but under the Mansion House accord, City institutions are moving in this direction anyway.<\/p>\n
The traffic light proposals, due to come in in 2028, could accelerate that push. Whether that leads to higher retirement incomes in decades to come, or just larger fees for private asset houses, must be open to question. The regulators admit that their proposals could lead to \u201cadverse incentives\u201d and the risk of schemes \u201cgaming the system\u201d, but, for now, seem determined to press on.<\/p>\n
This well-meaning project is morphing into a gigantic blancmange. Up to 20,000 employer single-employer pension schemes may have to take part as well as insurers and master trusts. Note, a similarly ambitious project, the pensions dashboard, first proposed by the FCA in 2014, has still not arrived 12 years later. The traffic-light project has a similar feel to it. <\/p>\n
Anyone with an interest has until March 8 to make their voice heard in the consultation.<\/p>\n
Patrick Hosking is Financial Editor of The Times<\/p>\n","protected":false},"excerpt":{"rendered":"It\u2019s been a crazy week for pensions. Nigel Farage\u2019s Reform UK announced it wants to take control of…\n","protected":false},"author":2,"featured_media":279707,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[138,246,111,139,69,244,245],"class_list":["post-302538","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-finance","tag-new-zealand","tag-newzealand","tag-nz","tag-personal-finance","tag-personalfinance"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/302538","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=302538"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/302538\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/279707"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=302538"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=302538"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=302538"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}