It’s been a while since the Faustian pact between the OFT and the ABI that kept the Competition Commission dogs off the insurers. For those with long memories, the price paid by the insurers was a promise to establish Independent Governance Committees (ICG) to provide some much needed transparency into the management of GPPs and Stakeholder Pensions.
So far there’s been no sign of them so on my recent trip to ABI Towers, I asked tousle-haired supremo Otto Thoresen and his pensions policy wonk Yvonne Braun exactly what we were waiting on. Apparently we’re waiting on the DWP.
Having been at the DWP earlier in the week (and the tPR last month) I’m not holding my breath.
I want my IGC and I want to see some pro-activity from the insurers and their trade body (which is what the ABI is).
You might (well) ask why I am getting hot under the collar about this; here’s why. Governance is the key to getting better pensions. These IGCs are supposed to be populated with people (like me) who care enough about pensions to give up their time (possibly on a pro-bono basis) to make sure that the workplace pensions that carry the retirement security of the 11m newly enrolled plus as many already in contract based workplace arrangements.
I’m not playing fantasy Guv’nor just yet but here are the eight key areas that IGCs could be concentrating on to make workplace pensions better today
- Annuities– currently around 1 in 2.5 people taking their tax-free cash from a personal pension, buys an annuity with the balance using the open market option. This is a disgrace and the IGCs are quite capable of driving this figure up towards one in one.
- Alternative at retirement products– there is no reason why insurers could not promote awareness of alternatives to conventional annuities – such as Alliance Bernstein’s Retirement Bridge, income drawdown and the range of alternative annuities on the market – I didn’t say sell- I said promote awareness
- Default structures– there are alternatives to lifestyle but they are not getting traction. Target dated funds and Managed DC are the main two and I want to see a statement of investment principles from every IGC telling me why it has chosen the lifestyle route.
- Costs- I want to know what I’m paying in explicit charges and I want to know what I’ve paid in explicit charges (the change in tense is about the nature of charges to NAV, which can only be assessed retrospectively)
- Member engagement – why shouldn’t members know what they’re investing in, and how their investment managers are using voting rights, and what steps they are taking to avoid their investments doing harm not good?
- Investment. I have no problem with smoothing so long as it doesn’t sacrifice too much growth. I not that Lord Hutton is joining Redington- the LDI house- note to Hutton, “DC needs LDI like I need a cream doughnut. We can’t gorge on de-risking- we need to have fit and lean strategies- pass me the salad bowl”.
- Internal controls; I want to see the FRAG and the ISO9001 and all those nasty boring documents that tell me that the execution of the processes is as good as I expect.
- Transfers; I want insurers to take the bull by the horns and get some portable into personal pensions.
It is not enough for the ABI and DWP and tPR to do the orderly thing “you first- no you first”. Somebody should be taking the lead and if no-one else will, I will repost this blog over every website in Christendom till we get some action.
There is no magic bullet that will restore confidence in personal pensions. We can’t make the employers great buyers overnight. But we can make the pensions that are bought “fit for purchase” by getting the governance right
We need our IGCs and we need them soon!