Darren Philp: We need an informed debate about costs and charges

Smart Pension's head of policy and communications says Now Pensions' AE index was propaganda but raises the issue of the long-term effect of charges

I was recently at a family festival (Chilled in a Field, if you were wondering which one) where I was putting my tent up in the rain, ironically after the hottest day on record in the UK. Those that know me, know I’m a bit of a pensions geek, so I was, of course, also checking my phone to pick up on the latest pensions news (I use ‘news’ in this context very loosely, and for a brief moment, I was far from chilled).

It was the day that Now Pensions published its ‘Auto-enrolment Cost Comparison Index’. I knew it wasn’t April, so couldn’t be an April fool, and it wasn’t yet August, so we weren’t yet officially in the summer silly season… but to say I was surprised is an understatement.

“Shock. Horror. Provider creates index which says its own charges are best” should have been the headline. My immediate thought: Let’s create our own ‘pensions technology index’, and we can see how others stack up then…but I digress.

I could write reams on why I believe Now Pensions was less than wise in its publication of the index. It didn’t take a genius to see through it and as we said at the time, it was pure propaganda.

Worse, it was propaganda based on a manipulation of the numbers, and ignored the fact that many members of Now Pensions have had their pots depleted to nothing. But I don’t want to do that, because, I believe, at heart Now Pensions is raising an important question about the long-term effect of charges in workplace pensions.

The debate about costs and charges in workplace pensions has been raging for a while now. Pension professionals will argue that cost isn’t everything and that we need to ensure value for money, over members, in the round. I certainly subscribe to that view, but it has to be within the context of charges transparency and comparability.

Fundamentally there is nothing wrong with the Now Pensions charging model. Indeed, at Smart Pension we have been approached by employers and advisers who want to use that structure for their workforce, and, as a technology-first provider that seeks to deliver for its customers, we have implemented numerous schemes on this basis, and are increasingly tailoring our pricing to the needs of employers and members (it is a very competitive market out there regarding price when it comes to employers looking to change providers).

The trouble with the Now Pensions model is that its structure allows pots to go to zero (something we proactively avoid at Smart Pension when we implement this model for employers). This has been especially true in recent times when Now Pensions’ investment performance has been well below that of other schemes, which reinforces the point about focusing on value, not just on cost.

The master trust’s director of policy Adrian Boulding was right to stress that its charging structure is better than the equivalent annual management charge in the medium term. He is also right that consolidation for members with small pots is essential. These are all valid points of discussion and are exactly the ones we should be debating.

At Smart Pension, we believe that much has been done to improve transparency and value for money in pensions, but more needs to be done before we get to where we need to be. We want an informed debate about costs and charges, which is why we have sponsored the Pensions Policy Institute to present the facts and run the numbers, in an independent and impartial way. The launch of this research is 11 September, and I’m hoping it will spark food for thought and a good debate. Challenge and competitive pressure is good in any market, and we are up for debate and challenge about how best to assess value and how we ensure members get the pensions they deserve.

Darren Philp is director of policy and communications at Smart Pension