Not the IGC chair!

I’ve been tough on the first two reports from Phil Green, Chair of Royal London IGC. I guess I am a convert third time around, as this report reads well, is stacked with useful information on Royal London’s value for money and gives me confidence that his IGC is effective in what it does.

Ironically, just as I’m getting to like his reports, Phil announces he is leaving and next year’s report will be from a new Chair. I hope that the rest of the committee, some of whom I’ve met, can provide continuity and continue the progress made so far. Phil Green has been the most open of IGC Chairs and I’ve learned from our meetings, thanks Phil and your committee, for helping me understand your job.

Engagement – “no longer a brochure”

My criticism of previous reports has focussed on a lack of separation between the IGC and the Provider, to the point that the report read like a sales brochure. I was, to read Green’s opening remarks, one of several who fed this back. The new report is denuded of the stock photos that pad out so many reports. instead there’s a lot of fact, especially in the appendices, which contain some really good graphs explaining the impact of commission, exit charges, transaction costs on net performance. The charts are clinical and targeted at the expert investor and the IFA.

I’m glad that Green has got the message, I know this work has always been done, but we never saw the outputs; whether for fear of scaring the horses or for confidentiality reasons, this information had been preciously withheld. Now it is in the public domain, I feel happier with the IGC and the Provider. Royal London uses financial advisers, it is not a direct to consumer outfit, consumers who purchase Royal London policies, are likely to have the protection of advisers. It is right that the IGC opens the bonnet.

Gone too is the euphoria with regards the policyholder’s dividend shared by Royal Mutual as a “mutual”. Rather than distribute excess profits to shareholders, Royal Mutual pay it to policyholders. They do of course reward their senior executives handsomely before doing so, so we should not think of those ragged tramps in Royal London adverts as sitting on the Board.  The IGC position on this has been toned down, allowing the reader to work out for him or herself, the benefits and shortcomings (there is no Remco) of the Royal London structure.

So in terms of engagement, I have moved my view of the report to Green – some achievement from the Chair!

Is this report effective?

I mentioned in my reviews of Prudential, Old Mutual and Aviva, that these providers were benefiting from the inflows of money from DB pensions. In 2017, £34.25 bn.  (ONS) , transferred from institutional to retail fund management. A substantial proportion of this money went to Royal London, though no mention is made of whether this money went to Royal London workplace pensions, or to Royal London’s SIPP platform.

As I’ve argued elsewhere, this matters. The different in governance standards between a workplace pension and a SIPP is that the workplace pension has an IGC in charge and the SIPP is governed by the members and adviser.

Royal London operate Governed Portfolios, an excellent idea, these portfolios bridge the gap between retail and institutional and are, I understand, available on both the Royal London workplace and SIPP platforms. But the price the SIPP customer pays, is dependent on an individual contract with the member, while the workplace price is negotiated at employer level. I am very interested in knowing how this works in practice – and so should the IGC. In short, is the SIPP adding value or detracting value; is the Royal London workplace pension being avoided by the advisers who are supporting the SIPP? What is Royal London’s position on the promotion of the workplace pension for the receipt of transferred money?

At present , the IGC are not engaging with these questions. I think they should be. Perhaps they can consider this as part of the 2018 work. My worry is that while the IGC has been effective in 2017 in reducing legacy charges, strengthening the value money framework and analysing performance, they are not addressing the wider challenges of Royal London’s being a workplace pension provider. Stepping up to the plate on key issues of the moment – such as transfers and decumulation options, should be within Royal London’s scope.

Much as I admire the attention to the detail on issues such as “opt-outs” on auto-enrolment, the details of adviser charging and the analysis of phasing and workplace support, these are the secondary issues. The primary issues going forward will be in helping policyholders convert pots into the retirement income streams people know as “pensions”. This issue is too little covered in the report – I would like to hear more on this next year – and to see Royal London taking a lead.

This progressive and well-funded IGC should be taking the lead – right now I think it still a little too reactive to give it a green- I give it an amber for effectiveness.

Value for money

I’ve said it on each occasion I’ve reviewed an IGC report, if the Chair states that the IGC is giving value for money, what is he comparing his provider to? My criticism of the Royal London IGC approach is that it is too much in its own bubble.

But this is a minor criticism, the sections 5 (charges) and 6 (investments) of the report are excellent. I got the impression that the IGC is connecting with other governance committees within Royal London, and while I wish there was a little more expansive look at rival approaches, I cannot fault the IGC’s understanding of its own provider.

Royal London’s approach to governance is clearly embracing the concept of value for money and you get a strong feeling – reading this report – that the IGC are going with the flow – or may even have created that flow in the first place. This may be Phil Green’s legacy.

I’m happy to give the Royal London IGC a green for their work on value for money and to commend Royal London for the way they are sharing information with their IGC on issues such as transaction costs. There is something very functional about the relationship between provider and IGC which is admirable, it is quite different from the “IGC in the provider’s pocket” impression given elsewhere.

In conclusion

I’m pleased that I can write nice things about this report. I wish the Chair well whatever he does with his time next.

He has given the Royal London IGC a firm base, and this style of report is much more effective than previous styles. I hope that whoever picks up the reins, will take a progressive view on the challenges I set out in my discussion of the effectiveness of this report. I suspect, from the commitment to better understand ESG in 2017, that the willingness is there.

Phil Green and the IGC committee do not put their faces on this report, but their integrity shines through and I really commend it to anyone interested in what is happening at Royal London today. Let’s hope that I can say the same next year.