I am (once again) grateful to Jo Cumbo of the FT for her excellent reporting. Here is her summary of the latest state of the nation report on the progress of IGCs and Trustee Chairs overseeing our workplace pensions. You can read the whole article here.
A DWP/FCA joint review of industry progress in remedying poor value workplace pension schemes published today has found that while the majority of the 1.5 million members suffering high charges have now been moved to AMCs of either 0.75 or 1 per cent, around a sixth remain affected by high charged. It found charges on the 16 per cent of the targeted AUM in contract-based schemes, representing approximately 243,000 customers, and 15 per cent of the AUM in trust-based schemes, representing approximately 85,000 customers had not been properly addressed. The FCA and DWP say the problem relates to a small number of providers.
The FCA and DWP say a small number of providers have only given limited consideration to qualitative factors and in the final agreed actions with IGCs or trustees. Consequently, these assessments may be limited and may result in valuable customer benefits not being fully considered from a value for money perspective.
The review also found that most providers had not fully reviewed the impact of transaction costs in their value for money assessments and in most cases had no immediate plans for a fuller review of these. The regulators had expected providers to have made more progress in this area. Providers using in-house investment management services have been singled out for particular criticism.
IGCs have also been criticised as not playing a sufficiently proactive and rigorous role in driving providers to agree robust actions more quickly. Where IGCs have agreed temporary actions or actions which depend on customer responses, some IGCs appear to have failed to challenge the provider and agreed an alternative solution for customers who do not engage or to have considered whether proactive action to reduce charges could have been taken notwithstanding any restrictions within the scheme contract.
The review has found that the independence of some IGCs may be compromised due to its composition or a strong senior management presence at meetings which ‘could impact the IGC’s ability to independently assess and challenge the provider’s actions to address the IPB recommendations’.
The review also found that where providers have elected to use a Governance Advisory Arrangement (GAA), there is insufficient evidence that engagement, interaction and challenge between the GAA and providers has been present.
The FCA and DWP say they will engage urgently with these providers by January 2017 at the latest to agree ‘robust actions’.
What the FCA and DWP are finding is what I am hearing, that the IGCs and master trust chairs have difficulty working out whose interests to serve. The message is straightforward.
Though you are funded by the insurers and the master trust providers, you act for the policyholders and members and you are charged with ensuring that policyholders and members get value for money.
Your first task is to determine value for money. You now know how to determine the money coming out, you need to decide the value your provider is offering. In my view, the value of a pension scheme is not judged by its capacity to engage members but by its outcomes. While the outcomes may be improved by better engagement, the primary purpose of a pension scheme is to convert contributions in into payments out as efficiently as possible. Therefore the vast majority of VFM is attributed to gross investment performance net of costs and charges.
IGCs and trustees of workplace pension trusts, there is nothing else in your remit remotely as important as improving the outcomes of those you entrusted to serve.
I hope that the FCA and DWP will go further than they have in this paper and – should they not have a satisfactory response from recalcitrant fiduciaries in January – NAME AND SHAME!
It is 3 years since the OFT report and by now we should be seeing clear improvements. Last year I appraised the IGC Chair Statements and I want to do this again this year. I want to include the larger master trusts too. During the year I have had regular contact with many of the Chairs and have seen which have been attentive and which show little or no interest in the job in hand. I intend to NAME and SHAME myself if there is need.
But I would much rather that oversight was left to the DWP and FCA and for that reason I am very pleased about this joint review.