This is an article that will appear in the Transparency Times, Andy Agethangelou’s online paper that will appear later this month. I am a big fan of the Tranparency TaskForce and also the publishing venture!
If you aren’t a part of what Andy is doing and want to be, you should join the Taskforce
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The Independent Governance Committee (and its baby brother the Governance Advisory Arrangement are the FCA’s answer to the problems identified by the OFT in 2014. Memories can be short so let me remind you what the OFT said
“The buyer side of the DC workplace pensions market is one of the weakest that the OFT has analysed in recent years. Part of the reason for this is the most employees do not engage with, or understand their pensions. Pensions are complicated products, the benefits of which occur a long time in the future for many people”.
The IGC is supposed to help make it easier for people to know what they are buying by communicating to those investing in personal pensions through their emploalueyers (often as a result of auto-enrolment) whether they are getting value for money.
What’s value for money?
IGCs have spent most of the last 12 months trying to work this out and have come up with a number of formulas;
The IGC of ReAssure (a company that looks after closed books) used an assessment based on the policy holders reasonable expectations. The trouble was they never published what these expectations might have been!
The ICG of the Prudential (chaired by the former Chair of NEST) set the level of expectations at 3% pa above CPI (after charges).
Other IGCs, notably L&G have been more ambitious and looked to benchmark the value and money of their provider’s proposition with UK and international benchmarks. They have shown frustration at not getting the management information to properly measure the “money paid” for the “value given”. You can see why. In April 2015 the FCA issued a paper proposing a way of establishing what we are paying for our pensions and called for evidence, a year later and we’ve heard nothing. In a year’s time the DWP is supposed to be strengthening the charge cap on workplace pensions by a new all-inclusive formula. This project too seems to have run into difficulty.
The first and most obvious way that IGCs can help with Transparency is to keep knocking at the FCA and DWP’s door and ask for clarification on how they should work out what we are paying for our pensions. It does sound obvious but actually most of us don’t have a clue what we really pay, having to make do with the published charges of the provider which may or may not cover the costs incurred in the management of the investments made on our behalf!
So far I have read 16 reports from the IGC Chairs, all published this spring. The costs of these reports to the providers, who foot the bills, will have high and though we don’t know how high, we can expect some value from that money spent. Which is why I have been reading and reporting on each report. If you’d like to read them for yourselves, or read my reports on them, you can do so by following this link; https://henrytapper.com/2016/04/07/iwanted-for-listing-igcgaa-chair-reports/ (which will also take you to a list of GAA reports).
I have been quite tough on some IGCs for not properly looking at this question. Many of the task force groups look at questions of value, I’m thinking particularly of the stewardship group which looks at how asset managers are exercising proper controls over our investments. A recent report from Share Action suggests that the Workplace Pension Providers, who choose the investments ordinary people can make, are not doing enough in this area. I’ve been disappointed that none of the IGCs have looked at this area properly.
The big issue is what happens with the Chair reports of the IGCs (many of which are well worth reading). Will they get read? Will people even know where to find them? We are waiting to hear from the Regulators how they intend to advertise the work of the IGCs and what the private sector can do with the information to help with the problem the OFT identified.
I’m certain that we can do quite a lot! What’s needed is for an independent organisation that is trusted and not for profit, does work to both publicise the reports and help the IGCs in their second year to get better data both to work out value for money relative to their peers in the UK and international best practice.
The Transparency Task Force can help in a number of ways. The work we are doing on data, on investment consultancy, on stewardship and on international comparators is all grist for the IGC’s mill and – if we can find an organisation capable of managing a benchmark service then we will have done a fine thing, not just for the IGCs but for the people at the end of the supply chain, the beneficiaries of our workplace pensions,
What next? A lot of hard work and some tough decision making to make this happen!