Old Mutual – a case for an IGC referral?

Old Mutual VFM4Old Mutual Wealth (OMW) frame their IGC report with a reminder to policyholder of what the IGC is there to do. The ICC must

Assess the value for money of our workplace pension schemes, raise and escalate their concerns to us and if required, the FCA, if they feel we have not responded appropriately.  They may also communicate their concerns to relevant policyholders

Old Mutual has supplied it’s IGC with information about the outcomes of workplace  policies en-cashed since January 2009.

Old Mutual VFM

These are not exacting benchmarks. Quite a high proportion of policyholders look like they didn’t even get their contributions back , more didn’t get a real return (relative to inflation and many would have been better off in a savings account or just sticking the money in a FTSE tracking ETF or similar.

We don’t see how those policies that did meet these very limited benchmarks , fared against them but later in the report , we get a good feeling for why outcomes are often so poor.

Old Mutual VFM2

Let’s rephrase that, the charges aren’t on average higher, they are almost universally higher, than most other providers. These charges don’t “appear” to be higher, they are higher.

These figures don’t include the hidden costs within the funds that OMW’s policyholders use, that’s presumably because of the excuses given by OMW that (despite other IGC’s succeeding in getting slippage numbers from external numbers, it will “take time” for Old Mutual to get these to its IGC. The IGC boldly presses on ,,,

Old Mutual VFM3

Let me rephrase this, a minority of members are paying transaction costs of more than 0.25% , they may be the same minority paying more than 1.8% pa for OMW to manage some money in a pension pot.

But we don’t know how many and how much policyholders are actually paying, because OMW use external managers.

At the risk of stating the blindingly obvious -every workplace pension provider uses external managers and most of them no know what that external management costs. Most of them are taking steps to cap all charges at 1%.

But OMW are not capping annual management charges. The only thing they are doing is reducing exit penalties for people who want away, these will be reduced to 5% for those under 55 and this will be implemented some time during the next year. In the meantime, some of the most heinously over-charged will get some rebates in 2018-19.

Frankly this is not good enough. The cost of an extra 1% pa on charges over the lifetime of a typical policy was reckoned by the Pensions Minister in 1997 to be 1% pa. Since then we have had a stakeholder pension which should allow us all to have pensions managed at 1% or less. OMW have persistently avoided any form of cap and do so till this day. The result is the outcomes that they advertise above.

Frankly this is shameful and the IGC should be saying so, not just to policyholders but to the FCA.

The outcomes arising from OMW’s closed book of workplace pension business look poor, the charges look high and the value that policyholders are getting for their money, looks minimal. Yet the IGC report concludes

Old Mutual VFM4

Let me rephrase that, an undetermined number of policyholders are not getting value for money- or to use the vernacular, they are getting ripped off.

I once went to a football match after which the Chairman of the home side said that the majority of his fans were law abiding citizens, I had been hit over the head by a seat by one of his supporters. Knowing that most of our fans had not been assaulted did not make it any better. I give the IGC a red for their value for money assessment, it is lacking any kind of rigour – OMW should be reported to the FCA – instead they are being applauded.

 


Effective? –  An apology needed?

You would have expected the IGC to have come out on the side of members. But the OMW IGC chair opens his report by criticising his policyholders.

old mutual butcher

I highlight this statement because it really is ludicrous. The OFT demanded IGCs be set up for the very reason that most people are completely blinded by pensions, the IGCs may be failing to make themselves relevant , but that is not the policyholder’s fault. It is the fault of the pension providers as the OFT told us in 2014OFT

One of the reasons that OMW policyholders may be disengaged is because they were sold a Skandia policy by a financial adviser. They now have an Old Mutual policy and typically no financial adviser. Is it any wonder that policyholders are disengaged?

Not even the advisers – busy doing nothing and getting paid for the advice they aren’t giving are engaged. The IGC chair points out of OMW

old mut advisers

It’s not clear what financial benefit , those 559 policyholders got from being on the non-advised system nor what proportion they represent of total policyholders, but I suspect that the vast majority of advised policyholders are still claimed by advisers as clients and that a value for money assessment of the adviser fees/commission paid to those advisers would not be a happy one.

Far from berating policyholders, the IGC should be offering them an apology , on behalf of OMW and their advisers for allowing this situation to continue.

This is not effective work. I know the top people at Old Mutual and I will be sending them my assessment of this IGC report with the heading “could do better”.

This report is not effective , it is most ineffective – it gets a red for ineffectiveness .


 

Engaged?

There are some aspects of this report I like, the “calls to action” for instance. The report is well written and clearly comes from the hand of one person.  This for instance is really goodOMW call

But while the report calls for member engagement, it fails to say what it clearly means by retreating behind a language which all too often uses imprecise terms such as “a majority of”, “on average” and “depends on”. Lines are blurred and accountabilities are fudged. Even when a definite statement is made – as in the call for action above, it’s not clear what the recompense will be.

A very large part of the report is taken up with pictures of energetic, presumably wealthy, retirees. These pictures only engage the converted, they do nothing to engage those struggling to understand why so little is being done on costs and charges.

I can at least be grateful to the IGC for engaging me (one of the few who read and publicised the last two reports), but I can’t see this report being read any more than the other two;- unless, that is, the IGC send it to the FCA as a formal referral on (lack of) VfM grounds,

I give the report an amber for engagement.


In conclusion

I sold a lot of Skandia GPPs into the workplaces of my clients in the early 90’s. Some of those clients are now friends, they are not getting any form of advice but commission is still being paid to someone.

They are paying huge charges. Since I set up those GPPs, value has increased on new policies, but not on those Skandia (now OWM) plans. ]

The mess needs cleaning up and fast. The program of switching policyholders to non-advised status should be accompanied by a new fee structure , that puts such members on a comparable charging structure to a modern day workplace pension (no more than a 1.00% charge). Transaction charges should be published and a full value for money assessment be conducted by OMW and overseen by the IGC.

Funds should be trimmed and fund managers sacked if they don’t offer value for money. An OMW default should be established on VfM lines and used for all orphaned money.

This report highlights significant problems with the OMW back book of workplace pensions. The IGC should be referring OMW to the FCA and should not be making this statement.

Old Mutual VFM4

Relative to what these policyholders could be getting elsewhere, virtually none of OMW’s policyholder’s appear to be getting VfM.

Which is a disgrace.

 

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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