2018 and all that

It’s IGC reporting season again and I’ll be looking to have answers to four questions this year. So here are my questions (more hope than expectation).

1. If you’re making a value for money, what is your value for money (VFM) benchmark?
2. What has your provider done to improve its performance in terms of “Environment, Social and Governance” practice (ESG)?
3. What innovation has your provider shown in helping members/policyholders to better outcomes in retirement?
4. What have the IGCs been doing to ensure that people taking CETVs from occupational schemes are getting a good deal?

Value for Money

I’m looking for a more strenuous approach to value for money which asks searching questions of providers with a weather eye to what the competition is getting up to. I suspect this was what the Office of Fair Trading were after when they conceded they would not refer the insurers to the CMA (subject to their operating effective IGCs).

By way of explanation, we have become used to the platitude from the Chair “In my opinion xyz are providing you with value for money”, but I have yet to see one provider offer a league table of other providers compared on the same basis. Not all providers can be offering the same value for money on their workplace pensions, some must have superior investment propositions, others a less engaging member journey – and we know that the costs of different providers can differ radically.

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Innovation in retirement 

Innovation is in short supply among workplace pension providers. There has been lip-service paid to innovation in retirement outcomes, but nothing substantive. The deferred annuity solutions put forward by Alliance Bernstein and others have been adopted by one or two master trusts.  People’s has put in place a partnership with LV to offer non-advised drawdown, but for the most part, providers continue to stand behind the mantra “we offer all the freedoms”.

CDC is not a natural fit with a GPP but it may be an option for Master Trusts to convert to. Since the acquisition of the Zurich proposition by Scottish Widows, Widows has announced it will launch a master trust (using Zurich’s existing model). The same is happening at Phoenix, which can now boast the Standard Life Master Trust.If not CDC -what? Just what are the IGCs doing to help individual savers who cannot or will not take advice, solve the nastiest hardest problem in finance

The time for sitting on the fence on this – is coming to an end. In short, CDC is an option for all the major workplace pension providers and I hope that at least some of the IGCs will tip their hat to what is happening at Royal Mail.

Well they don’t. No workplace pension – trust or contract based, has yet taken a position on CDC, though in private many providers have done all they can to disrupt its progress.

ESG

The IGCs should (by now) have cottoned on to this and be looking at what their asset managers are doing as voters and in their corporate citizenship themselves. I would like to see IGCs holding the likes of Phil Loney’s feet to the fire (Royal London has no Remuneration Committee for Phil to answer to). IGCs should act as consumer champs – where they feel their own providers governance structures are lacking!

If the providers want to know what they were saved from, they should take a look at the kicking the leading investment consultants are taking from the Competition and Markets Authority right now.There is consensus; most people agree that a fund that has a positive stance to environmental issues, looks for social purpose and demands good governance in companies it invests in, will win out over time over one that doesn’t.

The major passive players, State Street, BlackRock, LGIM and perhaps UBS (Nest) have the biggest part to play in this. Not only are they the biggest owners of stock, but they have no way of exercising leverage over companies, other than to vote at AGMs.This is particularly true of mutual and of private companies where the public scrutiny of internal behaviours is weakest

CETVs

In 2017, £34.25bn was transferred out of Defined Benefit pension schemes into defined contribution pension arrangements. Some of this money went to old style personal pensions (what the FCA call “non-workplace”), most of it appears to have gone onto SIPP platforms (many of which are with insured providers) and a proportion has gone into workplace pensions.

I suspect that when the numbers are finally produced, the amount going into workplace pensions will be insignificant. But it’s the workplace pensions that offer ordinary people the best non-advised options. Many of these workplace pensions even offer the facility of adviser charging. My experience working with BSPS members, was that hardly any of them even knew that you could transfer into workplace pensions. The Tata Steel plan with Aviva was almost hidden from sight.

IGCs should be asking whether they should, in 2018, be ensuring that workplace pensions are being promoted (for those who have them) as a choice. In my view, most of the people who I met in Port Talbot, had been led by the nose into over-engineered, over-priced and quite unsuitable SIPPs when – assuming they should have taken their transfer in the first place – they should have gone into available workplace pensions.

What shape are the IGCs in?

This year will see two of the major IGCs subsumed into others. Standard and Phoenix are chaired by Rene Poisson and David Hare respectively. Hare has in previous years done an outstanding job of pushing Phoenix into places you would not expect a closed-book insurer to go. Poisson has a number of other positions, most importantly as a Trustee of USS, I hope that the merger of the two IGCs sees a continuation of the Phoenix style.

The merger of Scottish Widows and Zurich’s proposition should leave Scottish Widows with the upper hand. I have relented this year on State Street who appear to have moved on from the bad old days and I should relent on Babloo Ramamurthy, IGC chair at Scottish Widows. The performance of the Zurich IGC has been weak, simply outsourcing its work to consultants to tell it what to say about your provider is no good. Zurich’s IGC was weak with its provider on the introduction of the 1% cap on transfers. Although I dislike the conflict between Babloo’s roles at B&CE and Widows, he has been effective at both and I hope he has a combined role going forward.

One IGC’s report that I’ll be reading with particular interest is Aegon’s. Aegon’s behaviour towards Pensions Bee was frankly appalling. I will be interested to see what role (if any) Ian Pittaway and his IGC took in allowing the Pension Bee people go. Pension Bee’s Tobin Hood index should be referenced by the providers , if only to gloat over the improved performance of insurers using Origo, over the master trusts and single employer schemes using TPAs -who don’t (Peoples Pension excluded).

Why does this matter?

The IGCs are about the only means ordinary savers have to get questions answered by their providers. They fulfil the role of trustees of occupational schemes (including master trusts) as being member champions.

In the past. I have focussed on their role as providers of help to employers struggling to introduce auto-enrolment. Some providers have got it right (Aviva) and continued to offer themselves to smaller employers, some of got it wrong (Legal & General) and have had to withdraw.

The focus of the decision for employers and individuals is changing. It’s now less of a question of what should I buy, as what should I keep. Already more employers are using the Pension PlayPen to rate their pension than to implement one.

If we are to have a functional workplace pension market, the IGCs must play a muscular and relevant part. They should provide information on their providers performance, on their attitude to developments among their asset managers and they should be championing the cause of members, where things go wrong – or where providers are slow to pick up on new developments.

Organisations such as Share Action now take an active interest in the performance of IGCs against the metrics laid out in this article. We need competitive IGCs to provide a real test for the master trusts, to hold providers feet to the fire and to ensure that consumers – the people investing in workplace GPPs get a proper deal