Standard Life’s IGC’s annual report; deceptively good!

Standards

The Standard Life Independent Governance Committee’s Chair, Rene Poisson, published his first annual report yesterday, you can read it here either in summary or in its full 40 pages. Most will read the summary but for those interested in product evaluation, the full document is worth the effort, if only for the evaluation matrix that is finally revealed in Appendix VII which is a thing of delight.

The report is deceptive, it is written slightly cryptically in places in a way that makes you sense rigour without the report ever becoming rancorous. Having been to Standard’s offices to meet with the principal protagonists (both from the IGC and the life co), I have seen the velvet glove and sensed the iron fist.

Much of the report concerns itself with the review of Standard Life’s legacy and the steps the life company is taken, at the prompting of the IGC to reduce the calamitous impact on some policies of commission paid where little advice is given , from funds which so expensive that they would struggle within any VFM evaluation matrix and from product charges reflecting the inefficiencies of the past rather than the efficiency of straight through processing.

The report concludes (quite candidly) that what is good for members (modern contracts) is good for Standard Life (modern contracts). It points out that Standard Life makes higher margins from the new and members get better service from new contracts – especially the flagship workplace contract “Good to Go”.

The report points out that the profitability of a contract to the provider is not in itself an indication of value for money and this is at the core of Standard Life’s marketing philosophy. If this alignment seems a little cosy to you, then I have to agree, Standard Life’s member borne charges are at the top end of the 0.75% charge cap but the £1200 annual maintenance charge- levied on the employer, makes owning a Good to Go pension product a luxury most small employers cannot afford.

The employer charges full outside of the scope of the IGC but as auto-enrolment starts impacting the micros (where the distinction between employer and employee is very grey), I suspect that the IGC will have to look at the value for money of the employer charge as well. Certainly i don’t see the efficiencies within Standard Life’s payroll integration as are created by the L&G/Pensionsync link nor the suite of web-based services offered by NEST. If the employer costs of Good to Go remain high, then those costs will eventually be set against contribution rates, employers have only got so much in the pension reward pot.


 

Overall I felt the discussion on legacy seemed to have worked in the member’s favour and as far as I could see, the VFM evaluation matrix had been applied with rigour. But I was concerned by the lack of detail in the scoring disclosure(Standard generally scoring a 7-8 on its products). I wanted an appendix which showed as a spreadsheet, just how scores had been awarded on the evaluation matrix both for old and new products. Let’s hope we can have these published retrospectively in next year’s report so we can see how things have moved on in a year’s time.

I would also like to have seen a more strenuous assessment of the investment offering within the various workplace pensions. The IGC concentrated on the work of Standard Life Investment Management, which manages active funds and in particular the GARS fund that is the principal active component of the default. But a great deal of money managed within Good to Go and other workplace products is managed by external managers – especially the passive component.

It’s disappointing that the IGC stays silent on this money. In a recent survey of providers for fund governance, Standard Life were towards the fore, it would be good to see in future reports, more encouragement to the life company to properly govern all money, not just that managed “in-house”..

 

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How then, in summary, do I rate this report.

As with the other reports we have seen before, Standard Life’s IGC are frustrated not to have the tools to properly evaluate the “money” part of the value for money equation. For a life co wedded to active fund management, where the perils of poor trading are most obvious, the report needed to be strong and it couldn’t be. I would have preferred a statement that no obvious conclusion could be drawn on whether value for money was offered than the bland assurance that the IGC had concluded members were getting value for money. I don’t think that the IGC can ignore the employer costs of Good to Go, those costs come out of the sponsorship pot, they are high and I’m not sure £1200 pa is value for money for the service the employer buys.

On the plus side, one senses a lot of work’s been done and there is a plan for the future. The report is well written (especially the summary report). I like the way the report is positioned on Standard Life’s website and it’s clear that Standard Life has given the IGC proper support.

I think more needs be done on investment governance and I’d like to see a clearer focus on what good looks like in terms of members outcomes (as the Prudential have done).

 

I’d like to see more diversity on the committee, too many independent trustees for my liking, insufficient external representation (a comment I’ve made on this blog from the start).


Adopting the three tests I’ve applied to Royal London, Prudential and L&G before.

  1. The position the IGC was adopting to value for money, and in particular, the assessment of value for money benchmarked against best practice gets a green
  2. The tone of the document, especially whether it demonstrates it is written for members (rather than to please those who pay the IGC’s bills or the Regulators), gets a green
  3. Its capacity to address specific issues with the provider where member’s issues might be prejudiced (gets an amber – more needs to be done on investment next year)

 

 

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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