For those who don’t follow this blog, I’ve been reviewing IGC reports since 2015/16 and intend to do so again this year. There is very little accountability on the IGCs. Though IGCs were set up to put right a potential market failure identified in the 2014 OFT report into workplace pensions, ongoing regulatory oversight of what and how they’ve been doing has been limp. An FCA review of IGCs (and their baby sibling GAA) was shelved in 2017.
When IGCs were set up in 2015 , it was a means for insurers to head off a full scale review of workplace pensions by the Competition and Markets Authority. At that time it was important to the management and shareholders of insurers that IGCs were properly funded and acted at arms length from the insurers. While this didn’t always happen, I have seen a steady improvement from most IGCs over subsequent years
The ongoing fear is that as time goes by, the IGCs will cease to be the commercial necessity for insurers. Last year we say one IGC (Virgin Money) having to report its workplace pension provider to the FCA for failing to deliver Value For Money to policyholders. This brave move contrasts to the asinine retreat into a master/servant relationship with its insurer, seen with other insurers.
The chart below demonstrates which IGCs have been continuously doing a good job, which have been improving and which have been falling away.
A copy of the spreadsheet behind this picture is available on request from me at email@example.com. I will be extending the spreadsheet this year.
I know that my reviews have had some influence in the past. I hope that this will be the case this year too.
What the colours mean
I assess reports using three measures
- engaged – how the report speaks to ordinary people
- value for money- how effective is the IGC in monitoring VFM and identifying areas where VFM is in short supply
- effective? – how has the IGC used its muscle to improve prospects of good outcomes for policyholders.
What I will be paying attention to
I will be paying particular attention this year to IGC scrutiny of the way that the insurer has embraced increased demand (especially from younger policyholders) for money to be invested responsibly.
I will be looking for signs that the IGC is mindful of the social purpose of the insurer with regards wider pension issues, including its behaviour towards employers and the promotion of workplace pensions to people considering a transfer of DB benefits.
I will be looking at how the IGC is dealing with the management of employer specific defaults and how the range of fund options apart from the default are being managed, monitored and reported on.
I will be looking at progress being made by insurers to provide policyholders with proper at retirement options, whether those options are provided in-house (drawdown and annuity) or sign-posted to third parties.
Finally, I will be looking at the steps IGCs are taking to ensure that insurers treat all their customers fairly, not just those with modern workplace policies. Insurers have a responsibility to manage their legacy books so that policyholders made promises in the past forty years, have those promises met. It’s particularly important that the IGCs to the older insurers pay proper attention to how with-profits funds are working, how they are being supported by their insurers and what the distribution policy is – especially where Guaranteed Annuity Rates (GARs) are in place.
It is only too easy for insurers to allow policyholders with valuable GARs to let these options lapse in return for the attractions of the pensions freedom. A lapsed GAR is – in my view – very similar to a transfer from a DB to DC scheme, it should only happen where the policyholder is fully aware of what is being given up. I fear that many people who don’t use GARs are “financially vulnerable” or – to use the vernaclual “they don’t know what they’re doing”
Advice and value for money
Here is an example of how an IGC might make a difference. It relates to products sold before the abolition of commission resulting from the retail distribution review in 2012.
I am concerned that before 2012 many policyholders bought advice over the lifetime of the policy through the charging structure of their policy. I will be considering whether such policies are getting value for money from that purchase or whether there is more that the insurer can do to make advice – or at least effective guidance – available.
This brings into question the issue of insurance agents and agency in general. Many of these policies were sold through direct sales forces where the sales agents (financial advisors) were promising a service on behalf of the insurer they represented.
After A-day in 1987, some policies were sold by insurance agents and some by independent advisers. The independent advisers may be seen to be more accountable for the promise of advice throughout the lifetime of the policy but in practice they were little more than insurance agents.
The terms that policyholders paid for their policies were no different whoever set them up and my experience is that the promise of advice for life has rarely been kept. The majority of the “advisers” who sold these policies prior to the introduction of the RDR in 2012 are no longer practicing and most of the firms they worked for are no longer offering financial advice.
In the years leading up to 2012, with commission for pre-paid advice clearly flagged as being banned from January 2013, many advisers told customers, including employers purchasing group personal pensions, that they could pre- purchase advice which would be paid for from within the policy (eg by the members) , meaning that the member – and the employer – were not needing to be charged fees from 2013.
No audit has ever been done as to whether these pre-purchases , resulted in ongoing advice. I believe that many people have been in policies which should be advised, but have had no advice delivered, IGCs should be aware of this and considering this issue.
Partly to recognise this, the FCA set up a review of workplace pensions by its Independent Projects Board and published findings in December 2016
Helpfully, the IPB recommended and the FCA instructed that penal exit penalties, designed to recoup charges for this lifetime advice, could not be collected for policies where the policyholder was 55 or over. This meant that people who had paid for advice but were not getting it, could get out of poor value for money contracts – provided they were of an age.
Most insurers have embraced the IPB’s recommendations, some more reluctantly than others. However very few members of the public know they can switch from old fashioned contracts – charging them for non-existent advice into new contracts which often offer more for less.
I am keen to see insurers promoting this facility, rather than relying on “punters” finding this out for themselves or relying on advisers to tell them. Many people are unnecessarily in high-charging policies when they could upgrade to better ones.
I will be particularly keen to see how IGCs are addressing issues such as these.
Please help me by sending me your reports
I rely on IGCs to send me their reports, most do – some don’t! If you are a member of an IGC, act for the insurer or are a policyholder, then please send me known links to the 2019 reports.
Thanks to David Hare, chair of the Phoenix IGC who has already sent me his. I will be reviewing this first/