If you read the terms of reference or Chair reports of the IGCs (and GAAs) , it’s the “member” on whom the work is focussed and for whom the reports are written. “Member” is short-hand for policy holder as in a contract-based world, the member of a workplace pension is not the same as a member of an occupational scheme. Legally, the “member” of a GPP owns his or her own scheme.
Meanwhile employers have a very ambiguous role viz a viz “their” GPP. There are loads of inverted commas floating about because we talk about an employer’s workplace pension when , in law, an employer has no formal relationship with the policies set up for its staff.
This is quite unlike an occupational scheme (such as a master trust) where members own nothing and have an expectation based on trust.
The initial intention with GPPs was that employees holding individual policies would do their own governance and that employers would be free to get on and make widgets.
But this didn’t happen. As the OFT pointed out
IGCs were brought in to protect the employee and this is why the reports put the employee as its “customer”. In retrospect, I think I would have been better talking of employees as customers rather than members and will do in future.
Employers are not the customers of the insurance companies, but they can play an important part in making sure GPPs operate properly.
With the help of advisers, employers can design specific default investment options based around the needs of staff.
Employers can (and do) set up Pension Committees to review the workplace pensions they operate.
And most crucially, employers offer their payroll to collect and pay on contributions from the employer directly and from staff (either from pay or via salary exchange/sacrifice).
So while, in law, the employer has no ownership of the GPP, in practice – the employer is key to the management of the arrangement.
Employers – the missing link
IGCs do not really acknowledge employers properly within their terms of reference or within the reports and this is not a criticism of TORs or reports.
But the link needs to be made and I think that link is currently being missed.
The fourth dimension of the IGCs is “being read” or “distribution”. I do not expect to see a clamour from members to read IGCs even if the FCA publishes a Directory. Nor do I expect newspapers publishing stories about IGCs not escalating problems they find at providers to the FCA.
However I do see, and am doing my best to make this happen, employers with the resource to care about the performance of their workplace pension, paying attention to what the IGC Chairs are saying.
That is because many larger employers (with workforces of more than 30 staff) have set up pension committees which to date have very little to discuss.
The IGC Chair report sets an agenda for these Pension Committees and asks them to consider how they are faring
- In establishing whether the company is getting value for money from its pension provider
- Whether the employer is being effective in maximising the value of the plan to staff
- Whether the employer is engaging staff with their workplace pensions, educating them and empowering them to take key decisions on contributions, investments and latterly on how to spend their pots.
Infact, the pension committees set up to manage an employer’s role in the workplace pension need do no more than translate the terms of reference of the IGCs into their own language. The reporting of pension committees can be informed by the reporting of IGCs and from this much good could flow.
Advisers and IGCs
I speak as an adviser and I don’t forget the value of IGCs in the governance process. It’s advisers who usually suggest and often organise pension committees. This is partly self-serving, the pension committee is the platform from which they can advise and it is a tangible entity to which and for which an adviser can charge fees.
I often question whether the pension committees I have been involved with deliver enough value to justify their existence (and the adviser fees). But I can – having studied these IGC reports and spoken with several IGCs, see a better way forward both for the pension committees and for the advisers to those committees.
Which is why it is really important that we promote and encourage IGCs to continue and to do so with rigour, enthusiasm and skill.
Key actions to better spread the word of the IGCs
- We need a central directory to which all stakeholders, Regulators,IGCs, Providers, Employers, Advisers and Members can refer
- We need Advisers to advise employers of the existence of the IGCs and encourage them to read these and act upon them
- We need employers to read the IGC statements and act upon them, perhaps distributing them to staff but certainly making staff aware of them and what they say
- We need Regulators to encourage this.
Ros Altmann is calling for a Pension Revolution. That means getting people not just to passively enrol into workplace pensions but to pay attention to the pension into which they are enrolled.
Whether that person is the sole customer of a GPP or the sole member benefiting from a deed of participation with a master trust makes no difference to the individual and it is important that GPPs and master trusts come together in treating their beneficiaries fairly.
But at the heart of this process is the employer. At the moment, most employers see their duties under auto-enrolment as a burden not a benefit. They have yet to be convinced that the money paid into a pension is an employee benefit, let alone deferred pay.
Most employers do not see the point of having a pension committee and are quite unaware of IGCS, many employers since RDR (and especially since the expiry of the sunset clause this April) have no adviser.
For all these reasons, it is critical that we make the system of governance agreed after the OFT report- work. IGCs need to be promoted and (where they are weak) told to buck up their ideas. Employers need to be made aware of the work of the IGCs and how that work can benefit them in engaging them and their staff.
And finally, and this is where the IGC finally becomes read by its intended readers, employers can find ways to promote their workplace pensions so that “customers” want to read the IGC reports.
That final sentence may sound fanciful, but it’s what the IGC reports say they want to happen and it’s what their TORs say should happen.
Now it’s up to people like you (and thank you for reading) to make it happen!