The Old Mutual Independent Governance Committee’s Chair Report is out and it’s a good one.
The Chair – Richard Butcher works for Pitman Trustees and having waded through a number of Pitman GAA reports , I had expected another formulaic report which was of little use to Old Mutual Policyholders and didn’t advance anyone’s understanding of Value for Money within a workplace pensions context.
I was wrong.
Why the Old Mutual IGC works
“Occupational pension schemes” and “group personal pension schemes” might share the word “pension” but they are hugely different animals.
Their governance structures are so very different – and this gives rise to quite different risks to consumers that need to be managed.
The two types of scheme tend to use, and have used, quite different distribution channels. And product design varies a heck of a lot too – how many people in the occupational pension scheme world have come across the likes of capital units?!?
Quite a number of IGCs are stacked with people whose experience is almost exclusively on the occupational pension scheme side. So it’s not surprising that it is taking some folk a while to get their heads around group personal pension schemes.
The Old Mutual IGC has, to its great credit, not just two occupational experts and two personal pension experts but one person who properly understands both animals. The link man is Ian Costain who I don’t know but who I greatly admire as the architect of the best statement of how we measure good DC outcomes that has been written in the UK.
You can find this work of genius here. The document was written by Costain in 2011 and it explores 6 measures that collectively can determine the likelihood of people getting a good experience from a workplace pension.
• Appropriate contribution decisions
• Appropriate investment decisions
• Efficient and effective administration
• Protection of assets
• Value for money
• Appropriate decumulation decisions.
In Appendix 2 of the OMW IGC we find these 6 measures listed. They are surrounded by gobbledygook from the FCA’s COBBs handbook and a long legal ramble about VFM, neither of which are comprehensible to me (let alone a pension expert.
Costain’s contribution has not just stood the test of time, but his 6 measures can be understood (once you understand “decumulation”) by the ordinary reader- the member-the policyholder.
The Old Mutual IGC works for me because it is informed not just by the occupational people or the Old Mutual people but by Ian Costain , his clear thinking and his clear language.
The document uses simple language and personal pronouns that make it absolutely clear what has been going on
This is not the legalese of the VFM Framework but the clear language of Costain’s masterpiece
The report concludes that most Old Mutual customers are getting VFM but some are not. The report itemises the areas for improvement and explains what the problem is, why it has arisen and what can be done to set things right.
The informing intelligence of this section appears to come from the collaboration between those in Old Mutual’s employ, the two occupational experts and Costain in the middle.
Critically, the report shows it understands the dynamics of distribution which made OMW (or in the day Skandia) source pensions.
The reliance on independent financial advisers both for sales and for advice on products is clearly set out. The problems that have arisen form the ending of commission- in particular the retreat of IFAs from advising on many of these policies is also clearly set out.
The problems, the reasons for the problems and the answer to the problem (Old Mutual taking control of orphan clients) is clearly set out.
In dealing with the legacy, the IGC looks peculiarly effective
The Value for Money Assessment
In the late eighties and early nineties I sold a lot of Skandia Life GPPs with very little understanding of the costs of the funds I was recommending, the costs of the investment wrappers Skandia were using nor the impact of the policy charges which were recovering the substantial commissions I was receiving.
I do not get the impression that the IGC has got to the bottom of these costs and I don’t think that even Old Mutual fully understand the costs to their policyholders of the many funds on their platform.
Granted the FCA has been peculiarly useless in helping , but I have just re-read Martin Wheatley’s speech on The Defining Challenge of Our Time in which he states
What matters now is simply: delivery, delivery, delivery. How effectively are political principles applied in practice? How well are consumers supported under the new regime as we move things forward?
The speech focus on the role of the IGCs to improve value for money for the consumer and while I appreciate the intent of the Old Mutual IGC report, I sense that the IGC is still some way from applying the principles. If the mantra is “delivery, delivery,delivery” then the IGC still has a long way to go.
Assessing the report.
Like the Prudential and Legal and General reports (benefiting from the independent insurance experience of Laurence Churchill and Tony Filbin respectively), Old Mutual ‘IGC statement speaks the language of the policyholder and its tone is balanced and confident. This is a well reasoned document and I give it a green for Tone.
In dealing with Old Mutual, the report gives me confidence that the IGC has been effective. Here the mix of occupational and insurance people seems to work properly , the report is both perceptive and effective and I give it a green for effectiveness,
The final metic that i have been applying, the understanding and implementation of value for money is less good. There is much i would like to see in terms of the assessment of the 6 metrics which is missing and I really don’t get what value members are getting for the money they are paying to Old Mutual and through Old Mutual to advisers. While I appreciate that the IGC are engaging with the issues, I would have expected to see more by now and I give the report an amber for its work on value for money