The table above reports on the various ratings given to IGC reports in 2018, it includes the GAA report of St James Place that is good enough to be an IGC report.
- An interest in the provider’s work on decumulation (innovation)
- A proper analysis of the provider’s work on “responsible investment”.
- A statement on transfers from other workplace pensions – especially from DB plans.
I got a little satisfaction on “1” and “2”, but no IGCs engaged with what is happening in the big bad world of transfers.
How we spend our money
The money we build up in workplace pensions is there to be spent. The spending of the pot is as close as we get to justifying the tax reliefs given to “saving”.
Most IGCs seem to consider their remit to extend only to the point where the member reaches some notional retirement point and then cashes in the pot. Pot encashment is not happening at anything like the rate anticipated by some. Money is transferring from savings programs to wealth management programs which could often be described as wealth preservation programs.
The concept of a pension as a means to mitigate inheritance tax, is as bizarre as the idea of swapping a pension for a Lamborghini. Sooner or later, providers are going to have to exercise some control and give members who don’t know what to do, a guided pathway that approximates to a pension. If workplace pensions don’t adopt CDC, then the product needs to provide a collective drawdown option which offers a real alternative to an annuity. I saw little or no evidence of IGCs engaging with these issues in the 2018 report.
Engaging through responsible investment
For all the hand-wringing about policyholder’s lack of engagement (either in saving or in reading these reports), IGCs are still struggling to understand why people find pensions so very boring.
In my recent piece on pensions and the blue planet, I highlighted research commissioned by a group of fund managers, that concluded that people don’t find pensions so boring , if they know where their money is invested and that it’s invested responsibly. This report can be read here.
There were some good analyses of provider behaviour with regards concepts like ESG and SRI, but none really made the link between what the member wants and what the provider can deliver.
I hope the DCIF deliver their report to all IGCs (and GAAs) this year. I hope that all members read it rather than wasting more time on vanity projects on member engagement which are little more than pointers for the provider’s marketing departments.
Responsible Investment should be what Workplace Pension Defaults practice. Let’s hope that by this time next year, the trend developed by L&G and NEST to offer members responsible investment as standard, are adopted by others. As for the IGCs , they should be calling for responsible investment to be as standard as the wearing of seat belts in cars. “clunk click every trip”.
That said, we did see a section on responsible investing in almost every report, which is a move in the right direction.
The workplace pension for transfers.
For most people, their workplace pension will offer lower fees, better default investments and – let’s hope default ways to spend money. They should be – for most people – the way, not just to save in the workplace, but to spend in later life. They should be both pension and deposit account, a reliable source of funds in later life.
It is therefore extraordinary that workplace pensions are pretty well ignored in the transfer debate. They are rejected by most IFAs in favour of wealth management solutions which offer ongoing involvement for the adviser, not just in the advice on drawdown, but on the management of the drawdown pot.
Most workplace pensions (including NEST, Peoples and NOW) do not offer advisers the opportunity to be paid from the fund for initial transfers (contingent pricing) and are therefore ruled out of court. Even those providers (like L&G and Aviva) who offered workplace pensions to steelworkers, hardly got any money into their workplace pensions. This appears because TATA and Liberty, the principal employers behind these workplace pensions, were shy of putting forward their products.
Many large occupational pension schemes do not make their workplace pensions available to transfers from active employees. This is because they do not want to be seen to encourage transfers. But the transfers are happening anyway, sometimes we are seeing members accruing DB, ceasing to accrue and then transfer to an advised SIPP, even when the employee is still in employment. Ironically, the employer is turning its back on these people. I’m pleased to see that Lloyds Bank’s “Your Tomorrow” scheme has recently changed policy on this.
Transfers from DB schemes tripled from 2016 and 2017. Yet not one IGC mentioned this change in workplace pensions.
The IGCs are simply not engaging in this issue. They should be asking their providers whether the providers are making the “transfer in” option available to members and promoting the advantages of using a workplace pension for saving. If the Aviva GPP and the L&G workplace pension had been advertised in Port Talbot and Teeside, the abominable solutions put forward by firms such as Active Wealth, would have had a benchmark.
I find it hard to credit, that most IFA reports I have read on transfer options did not even mention the opportunity to use the workplace pension.
I find it hard to credit that not one IGC report I have read, has focussed on the role of the workplace pension as a “default” for those who have decided to transfer away from their DB plan.
Some final thoughts on IGCs in 2018
In 2018 IGC reports show IGCs more effective and more engaging than in previous years. They are slowly getting to grips with the concept of value for money, but most are still along way from reporting on it effectively. More work needs to be done if the 2019 reports still show such inconsistency in Vfm reporting.
With regards the future, IGCs have to move with the times. We are in a world today where consumers are much more aware of the Blue Planet than when the terms of reference of the IGCs were established (2015). Such is the pace of change, that a review of the TOR may be needed to ensure that 2018 focusses on what matters to members.
There needs to be urgent thought by all workplace pension providers about what can be done about decumulation. IGCs,Employer Trusts and Master Trusts should look closely at what comes out of the DWP legislation on CDC and see what can be taken for their schemes. IGCs should be pushing providers for the innovatory solutions called for by the FCA.
Finally, and belatedly, the IGCs must look at the numbers below and ask themselves why the schemes that they are so proud of (only one IGC referred its provider to the FCA in 2018), are not being used as safe havens for transferred money. There remains an opportunity for workplace pensions to be better promoted both for primary transfers and for secondary transfers from unsuitable SIPPs.
I hope the Chairs of IGCs, especially those I am critical of, take note that I can change my views (Royal London being an example). There are no underlying prejudices, I simply want IGCs to become effective consumer champions as the OFT meant them to be – and the FCA require them to be.