What so concerned many of us when we read the comments from the Independent Governance Committee’s recent meetings at Evershed’s city offices, was that they showed no unified sense of purpose, no urgency and worst of all – confusion about who Independent Governance Committees were for
Even the lawyers seemed unclear!
The articles I wrote sparked interest from a lot of people, including people sitting on IGC boards – some of whom took my criticism as constructive. I’m pleased to be now working with some of these people on the key issues which I take to be
- What do we mean by independent?
- How can we define value for money?
- Can good governance improve value for money?
I don’t think that IGCs can do much for value for money if they aren’t independent. And independence means breaking free of all the layers of intermediation between the policyholder and his retirement pot. That means no conflicts – NO CONFLICTS!!! (see how the CAPS tab helps you escalate!)
But there is a fourth thing that IGCs can do, and I have not seen this in one of the Terms of Reference I have read. It is within the scope of an IGC to restore confidence in workplace pensions and thus to encourage retirement saving.
Indeed – that is the vision not just of the Pension Plowman, but of any right thinking IGC.
No more money down the commission drain please!
The traditional solution to improving savings levels is to throw money at distribution (aka advice). By putting advisors in the workplace, and rewarding them with a percentage of the money people saved (aka commission) every wins. Well almost everyone, the only loser is the saver, who pays dearly for the cajolement in terms of eventual outcomes.
As the OFT point out, the extra 0.5% pa that advisory commission put on the AMC comes at a huge price to people’s retirement pots.
So commission is a bad way to get better outcomes, though a good way to reward advisers. The RDR did for commission on contract based plans and it’s on its way out of occupational pension schemes (at last).
Without commission, we are left with three choices to improve savings rates
- Hard compulsion – which is what they have in Australia (where they fine you for not voting)
- Soft compulsion- auto-escalation and auto-enrolment
- Winning hearts and minds.
Of the three, “winning hearts and minds” is the hardest. Because it involves treating customers fairly and not finding as many ways to pay everyone else before the customer as possible. I call popular pensions popcorn pensions.. you can read about them here!
The process of putting the customer first is very much what pension governance is about. It is what the IGCs should be about and it absolutely what is needed to restore confidence in pensions and win back people’s hearts and minds to retirement saving.
Which is why I regard the IGCs as our best – indeed our only hope – of getting savings rates up voluntarily.
So how have these guys been doing so far.
Well I am not happy at all with the performance of IGCs since they opened their doors in April 2015.
Here is a table I have compiled with the help of Lexis Nexis who surveyed the IGCs of the insurers below and published their findings in October.
|Insurer||Number of meetings so far||Terms of Reference (downloadable)|
|Legal & General||NOT KNOWN||NO On request|
|Phoenix||4||NO On request|
|Scottish Widows||8||NO On request|
|Source Lexis Nexis||Occupational Pensions||October 2015|
This is not a good start. It doesn’t look to me that these IGCs have hit the ground running. It seems to me that they are doing the bare minimum to comply and that they see their customer as the FCA- if not their paymasters, the insurers.
Having been recruited by the people they are supposed to be at arms length from, and sitting as they do alongside representatives of the insurers who have the same voting rights as the independent members (Zurich being the notable exception), I am very doubtful that most of the people sitting on independent governance committees will act without conflicts.
Insurers cannot keep policyholders in the dark any longer.
The customer is the policyholder (and of course IGCs should protect all personal pension policyholders- not just those actively contributing at work) . The customer needs to be assured that
- They know what they are paying for and to whom
- They know what they are getting for their money
- They can see they are getting value for money- using proper benchmarks
- They know how their money is being invested
- They can monitor how their investments are doing – using proper benchmarks
You may say that we’ve tried this in the past and failed. Well that was because we didn’t deliver the information in a way that people wanted it delivered and also because few people believed that the information was trustworthy (eg wasn’t being spun by insurance company marketing departments.
The IGCs are a unique opportunity to offer us a proper assessment of how our pension providers are doing. If we are in a Personal Pension, where we have no trustees, they are our trusted fiduciary. They are our champions. We rely on IGCs and if they do not show they are on our side, we will be having words – well I will anyway!
Winning hearts and minds
IGCs need to do more than comply, they need to do more than beat insurers up, they need to change the way insurers behave so they really do put their customers first and treat them fairly.
We customers don’t know what we’re doing. As the Office of Fair Trading pointed out..
But if we felt we were being properly protected, if the IGCs were regarded as our consumer advocates and if they could remember that they do not serve the FCA or the insurers but the policyholders
- We would have trust in pensions
- People would be inclined to save more
- Many of the welfare problems we currently face would become a little less challenging.