Scottish Widows IGC – papering over the cracks

scottish widows


Scottish Widows IGC Chairman’s report is out and if you are a member of a Scottish Widows workplace pension you shouldn’t feel comforted by the words of its Chair Babloo Ramamurthy

Although the IGC has carefully scrutinised the various elements of Scottish Widows’ pension products, it is also important that we are able to take into account the views of customers. The IGC has agreed with Scottish Widows a new programme of customer research which will be conducted annually with the first set of results expected in the first half of this year. As a result of this research, in future years when the IGC considers the question of ‘value for money’, we will be better able to incorporate the views of Scottish Widows customers.

Oh dear – the tone is just so wrong!  I’m afraid that Babloo and his former colleagues Tilly Ross and Mark Stewart are still breathing the rarified air of the occupational world from which they come.

The Scottish Widows IGC was set up in May 2014, if in its two years of existence, it hasn’t found a way to listen to the views of the people it was set up to serve, I very much it ever will. The phrase “out of touch” does not do justice to this high-handed patrician nonsense.


Scottish Widows is a problem

Scottish Widows workplace pensions are a mess. They are among the lowest ranked employer offerings that the Pension PlayPen analyses. If you ask any payroll bureau who they least want their employers to choose, the name Scottish Widows will come up in pretty well every conversation. Scottish Widows administration has been a shambles and continues to be.

If Babloo and his committee want to know what it is like having to run a Scottish Widows workplace pension under auto-enrolment he should attend any of the many meetings of the Friends of Auto-Enrolment, it’s a lot cheaper than instigating a new program of customer research from Scottish Widows.

The problem is so bad that many of us who work helping employers choose and set up workplace pensions seriously doubt that Toby Strauss’ claim that Scottish Widows will set up 10,000 workplace schemes by 2018 will be hit. That is a target of less than 1% of the market and Scottish Widows are (as the report repeatedly points out) a big-hitting life office owned by one of our largest banks (Lloyds). The failure of Scottish Widows to maintain a place at the table as a workplace provider prompts the question, just what is Scottish Widows for. Will it- like Clerical Medical (who this report also covers), simply be consigned to “legacy”?

These are the real questions that the Scottish Widows report should be asking. For if Scottish Widows has no place in the market, the support that its workplace pension currently enjoys, will evaporate. That is a much bigger threat to member’s interests than any of the matters dealt with in this report.


The problem starts with a conflicted Chairman.

Ironically, the biggest threat to Scottish Widows market position (and to its ongoing viability as a competitive provider) is the master trust. Of all the master trusts who are eating into Scottish Widows’ market share, the most aggressive and most successful (at least in hoovering up the schemes Scottish Widows should be competing for) is People’s Pension.

Now get this. The Independent Chair and non-executive Director of the Insurance Company that owns Peoples Pension (B&CE) – the big boss is Babloo Ramamurthy. That is not another Babloo Ramamurthy – that is the same Babloo Ramamurthy that is Chair of the Scottish Widows IGC.

Of all the each way bets on a two horse race, I have ever witnessed – this is the best! How Babloo can preside over the best performing master trust and the worst performing GPP at the same time and not feel “awkward” I don’t know.

Everything that Scottish Widows and People’s do makes me feel awkward for Babloo Ramamurthy. Most of all, the appointment of State Street Global Advisers as principal investment managers to People’s Pension , the same State Street that was found a couple of years back in the fingers in the till stealing money from occupational pensions, the same State Street who until recently ran the strap-line “there’s value in complexity”.

While I appreciate that the appointment of State Street pre-dated Babloo Ramamurthy’s appointment to the IGC, the switch to State Street by B&CE was very much on his watch. State Street Global investor’s behaviour is recorded here.

Come off it Babloo – you cannot ride two horses in the same race. You are conflicted and you need to decide whose interests you are properly representing. You cannot continue to represent the interests of the People’s Pension membership and the policyholders of Scottish Widow’s GPP.


And now for the Report

The report recognises that there are problems but suggests the problem are systemic to the pension industry

Scottish Widows shared their recovery plans with the IGC and the IGC has observed significant improvements in service standards over the course of the past year, which has also been reflected in the marked reduction of complaints from customers in this regard.

But the report implies that the problems are not of Scottish Widows making

This followed a period of significant industry change as new rules introduced by the Government, in relation to Auto Enrolment, made this process more complex for Scottish Widows and its clients.

Where the report is critical, it tempers the criticism by suggesting that Scottish Widows’s problem is an industry problem

the IGC believes that Scottish Widows, in common with other providers, needs to do more to educate, support and engage its customers.

The cumulative effect of all this shilly-shallying is to undermine the principal purpose of the report – to tell members what is going on with their money. Too much of this report reads like a high-level appraisal of the insurance industry (what Tilly Ross, Mark Stewart and Babloo Ramamurthy did for a living when consultants at Towers Watson.


What they’ve done….

This is not to say that the IGC has done  things. They have got Scottish Widows to put in a new cash fund

based on cash instruments, that was designed to deliver a higher level of return, for those seeking a low risk option.

We can only hope that this fund does not fall foul of the problems of Standard Life’s and Threadneedle’s “cash funds” which both lost a quarter of their value in 2008 when the “cash instruments” proved anything but a “low risk option”.

Scottish Widows have really taken the “no exit penalties” dictum to heart and simply done away with them.

We are told that Scottish Widows charges are now competitive (their member borne charges that is) and the legacy has been dealt with as effectively as any of the insurers on which IGCs have so far reported.

And what they haven’t….

But while the IGC has been effective in this respect, it needs to know that the set-up costs of the Scottish Widows workplace pension plan are anything but competitive, and Scottish Widows are doing nothing to warn those members of workplace pensions who have bought into funds with high charges that they may not be getting value for money.

Scottish Widows continue to operate 127 funds over 28 sectors but whether they are properly managed we are yet to find out.

Scottish Widows operates a governance framework in respect of these funds. The IGC will examine the governance process for these funds during 2016 and 2017.

As with the Aviva IGC report , a link is provided to the Scottish Widows fund range including the bespoke funds which are confusingly split between Scottish Widows own funds and those externally managed. However the IGC report tells us

Scottish Widows has informed us that they do not use an in-house fund manager or receive income from fund managers in relation to the selection of funds and that the objective behind their charging structure is to align more closely their commercial interests with those of their customers

Closer inspection from the Scottish Widows website squares the circle

Scottish Widows defines the objectives for these funds and determines how they should be run. The management of the funds is delegated to a subsidiary of Aberdeen Asset Management plc.

While the IGC report explains just what the relationship with Aberdeen is about

Lloyds Banking Group (Scottish Widows’ parent) retains a 10% stake in Aberdeen Asset Management as part of the divestment of the former ‘Scottish Widows Investment Partnership’ to Aberdeen Asset Management in March of 2014

So no conflicts there then! The alignment of commercial interests with those of the customers presumably include the payment to Scottish Widows’ parent of a management fee. How this squares with the IGC’s statement that

Scottish Widows has informed us that they do not use an in-house fund manager or receive income from fund managers in relation to the selection of funds.

We must assume that the accounting trick that allows Aberdeen to pay money to Lloyds allows Scottish Widows to claim they get no kick-back from Aberdeen. Is this really a practice that the IGC can accept at face value?


Overall assessment

Like the Standard Life report, the Scottish Widows IGC statement is canny. It is extremely professional but unlike the Standard Life report, I don’t get the impression that it’s being very honest with its readership.

The tone is authoritarian,  paternalistic and distant.This doesn’t read like a report for members, it feels like a report written for the FCA and for the peer group of its independent members.

Scottish Widows needs a boot up the arse and this is an opportunity missed. If the aim of the report is to keep a lid on the fermenting problems within Scottish Widows’ workplace pension proposition it certainly doesn’t fool me.

On the central issue of Value for Money, the report has nothing to say. It blandly assures us that it considers are delivering value for money but as with so much else, it hedges its bets with consultancy speak. Infact members get

reasonable value for money relative to the market

which is really saying nothing at all.

  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 an amber
  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 an amber
  3. Its capacity to address specific issues with the provider where member’s issues might be prejudiced (gets a red – the report fails to address the crisis at Scottish Widows and what it does address, it addresses poorly)

About henry tapper

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