It’s not enough- not nearly enough – but at last the Pensions Regulator’s beginning to take workplace pensions seriously enough to offer something close to a decent choice for employers staging auto-enrolment.
Yesterday , Andrew Warwick-Thompson, head of policy and tPR’s “go-to man” for DC matters, published plans to include Group Personal Pensions (as well as mastertrusts) on the Regulator’s choice pages. These pages are important, not only do they give featured schemes publicity but they give them a tacit endorsement.
The GPP gives the Directory a new row of teeth!
The abandonment of the insurer’s trade-body, the ABI’s Directory of GPPs is good news.The Pensions Regulators willingness to use the FCA’s measure of governance- “value for money” as determined by IGCs – as a means to manage the list- is even better news.
There are three specific rules for inclusion that refer to the presence and quality of the IGC or GAA.
- the (provider’s) independent governance committee (IGC) or governance advisory arrangement (GAA) has assessed the GPP (or relevant GPP product series) under offer
- in year two, we expect the IGC/GAA report to include a statement relating to the value for savers in respect of the relevant GPP product series which confirms that it does not offer ‘poor value’
- employers considering whether to use the GPP can easily obtain the most recent IGC/GAA statements
For some reason , the final two of these requirements didn’t appear on the press release and were not reported in the Professional Pensions article “TPR to provide GPP list to help firms comply with AE” (not to Ed. check the sausage not the sizzle!).
But they are important. If all the Pensions Regulator has been asking for – was a compliant IGC report (as I had been given to understand) , then the first bullet would have been a paper tiger.
Bullet points two and three put an obligation on Insurers to demonstrate value value for money and make sure that the IGC can be read. Regular readers will note that many of the IGCs have done little to get to grips with VFM and nothing to promote the reports!
For an assessment of these topics check my at a glance matrix of IGC performance to date,
Hats off to the Pension Regulator for beefing up the IGC requirements, I hope the IGC Chairs (with insurers in the QWPS market) will take note- by the end of this year, you have a new set of teeth.
At last we are seeing some joined up regulation which marries what is going on at the FCA with the primary work of the Pensions Regulator.
The most difficult criteria for insurers currently to meet – (to be on the list) – is this one.
- your GPP is open to all employers who wish to use it to comply with their automatic enrolment duties regardless of projected membership numbers or contribution levels
I have argued “deep into the night” with the Regulator on this as I do think that insurers should insure and I don’t think giving an undertaking to take anything that comes its way is the way for insurers to go.
I would be interesting in hearing from insurers what a fully inclusive approach would mean to the amount they would have to reserve for (in case the most troublesome employers impair the solvency of the book).
I am seeking clarification from the Regulator that “open to all employees” is not value for money qualified. Currently good value GPPs might be open to all employers but on terms that might not be considered value for money.
For instance, to charge £1200pa to manage a workplace pension into which is paid less than £1200 might satisfy the Regulator’s test on inclusiveness but could hardly be considered value for the employer’s money. The employer would achieve better outcomes by putting the money saved into a “free to use” GPP or master trust.
Similarly, L&G will offer its workplace pension to any employer provided that data is passed to it using the pensionsync or eAsE interfaces. These interfaces are not free to use for the employer and might be unavailable or unsuitable for the employer, but L&G’s workplace pension seems to satisfy the ruling.
Will the insurers be bothered to be on the list?
The Regulator requires the GPP provider the right to opt-in to the list and gives the provider the right to opt-out.
That said, anecdotal evidence from the master-trusts on tPR’s list report that positioning on the list “has a material impact on employer take up”. In other words- being on tPR’s list boosts sales.
I would hope that all GPP providers, including worthwhile non-insured GPPs such as Hargreaves Lansdown’s Vantage and True Potential and Intelligent Money’s SIPPS, will want to be on – and make it to – the Regulator’s GPP list.
True Potential and Intelligent Money have yet to show me their IGC reports and can in no way be said to be promoting their IGC to employers. However, both tell me these are in preparation and April is not over!
Some of the insurers are not going to meet the “exclusions” test and are not currently suffeciently inclusive to make it to the list. If I am right that they can use employer charges (and/or prescriptive data integration channels – like pensionsync), then they these charges can act as a proxy for underwriting and concerns over profitability fall away.
Has the Regulator gone far enough?
“no it hasn’t”.
The choice it is offering is better than no choice and the inclusion of the GPPs is a step in the right direction. But employers are faced with too hard a choice. They need a means to make an informed choice.
If employers choose the likes of L&G and Standard Life and then find they have to change payroll , buy middleware or stump up £1200pa to be in the club, may consider the distinction between “open to all employees” and “practical for all employers” to be rather muddy.
The insurers may get to a point where they are “open to all” but find themselves having to disappoint which is neither good for their brand nor efficient in terms of relationship management.
Choice is only meaningful when it is informed choice.
The only way that the Pension Regulator can move from offering choice, to offering “informed choice” is to do what increasing numbers of payroll software companies are doing, and align themselves with a means to get informed choice. Whether that means a terrestrial IFA or a cloud-based robo-adviser is a decision for employers (one that will be taken on a cost/benefit basis).