By Dale Critchley, Policy Manager at Aviva
At its most basic level, value for money is a function of two elements:
-
Efficiency in the relationship between cost and provision of the desired output (getting the same for less); and
-
The volatility of the outcomes (increasing the predictability of results).
The National Audit Office (NAO) adds a third element to the co-related terms above: equity. This is the way that we ensure that what we do is for the benefit of all our potential customers and not just to the betterment of one; the manufacturer needs to get value for money from the products they provide or their business will not survive; the distributor must get value or they will recommend another product, for the employer value for money ensures their continued support, and if the customer does not get value for money then they will not achieve the retirement that they planned, and the entire process will have failed its most basic test: value for money will not have delivered the customer’s desired outcome.
Creating a legacy of value for money in the mind of the customer is essential in generating trust and credibility. To do this, however, is difficult when regular research demonstrates that a significant majority of members do not know how much they are paying for their workplace savings arrangements, nor do they have a clear idea of what they are expecting their scheme to provide. If we are to task governing bodies with the measurement of value for money it would seem to be a sensible first step to establish what the aims of the scheme are, and to communicate those aims honestly and effectively to members. Members must have the information they need to be able to judge whether the prospect of income replacement in retirement, in return for income forgone in employment, represents value for money.
Setting the metrics by which value will be measured is an essential first step. The next challenge for the industry is to meet those metrics; designing investment solutions that deliver growth, but also manage the volatility of outcomes so customer expectations are met. We need communications that manage those expectations whilst encouraging savers to aspire to what could be achieved by investing in the scheme, and we need charges that are attractive to all parties and accurately reflect the costs incurred by an efficient industry, one that challenges itself constantly to cut out inefficiency and drive out complexity.
Measuring value for money is a problem for Trustees and Independent Governance Committees, proving, and improving, value for money should be the challenge for the whole of the industry.
|
