L&G’s IGC returns to form

 

L&G IGC 3

 

The L&G IGC Chair report for 2019 and can be accessed from this link from it’s much improved IGC web-page.

Last year I though L&G produced a real stinker of a report and said so.

L&G have my money and many of the employers sourcing workplace pensions through  Pension PlayPen were guided to L&G. I hold the management of L&G in high regard .through their investment company (LGIM) , they’ve innovated, leading the promotion of ESG or what is more commonly known as  “responsible investment”.

L&G are credited with convincing Government not to refer the insurance companies operating workplace pensions to the Competition and Markets Authority. Through its policy and pensions teams , it proposed IGCs in the first place. So the performance of the L&G IGC in speaking straight to members, in offering a transparent view to the value for money they are getting and in effectively lobbying for members and for employers, is of particular importance.

I make no apologies about being very critical of the IGC in 2018, I thought they had taken their feet off the pedal and had produced a lazy report indicative of a lazy year’s work.


Getting back on track

From the moment I started reading the report, I felt something had changed. Here is the focussed and well written statement of the IGC’s responsibilities

Our responsibility to you

We’re committed to protecting your pension. We use our combined knowledge, experience and skills to make sure you’re getting a good deal from your scheme.

This includes (but isn’t limited to) checking that:

• your scheme is good value for money, and the costs and charges are reasonable

• the default funds (the ones you will invest in if you don’t choose something for yourself) are suitable

• the range of self-select investment choices can reasonably be expected to deliver the returns people are looking for to suit their own circumstances and timelines

• you can easily access your savings when you retire, and there are flexible options for taking your money

• you receive clear and regular communications about your pension • you can easily access help and information when you need it, and that customer service is efficient and accurate

We measure how well Legal & General perform across these areas, offer impartial advice when they need an external view and suggestions on how they can improve where needed.

And if they don’t deliver, we have the powers to hold them to account to the regulator, the Financial Conduct Authority


Tone of the report

I enjoyed reading this year’s report which spoke to me in a way that I understood and in a language which was generally accessible. There are times when any IGC report gets technical (the Appendices on funds) but provided these are appendices, I am comfortable.

There is one area where I think future reports can get bett. The chair’s statement is prone to hyperbole.

We’ve continued to be impressed by the quality of people in each and every area of Legal & General that the IGC works with.

(on the sale of the legay book to Reassure) All aspects of the transfer will be reviewed by an independent expert, with oversight from regulators.

We always want to make sure default funds are delivering the best they can for members.

These cases are taken at random but they suggest an imprecision of analysis; faults are found within L&G’s admin which must be down to individual failings – not all the people can be good. If the IGC know in advance that all aspects of the transfer will be reviewed, then their oversight is superfluous and the assertion that the IGC is always on top of defaults is tendentious, it is not for the IGC to be making that claim , it is for the IGC to demonstrate to members that that is what it does. “We’ll be the judge of that!”

My reason for raising these points is to improve the quality of the conversation with members, the IGC does not have to prove itself or justify the activities of L&G in this hyperbolic way. The still small voice is better.

But these are minor areas for improvement, overall I think this report has the right tone and I’m giving it a green for the way it talks to its savers.


Value for money assessment

The IGC are still struggling to get to grips with VFM. They are looking for it in the wrong places and haven’t worked out what really matters to members. In part this is because they don’t understand the dynamics of auto-enrolment and in part because they miss the importance of outcomes over the member experience.

Ironically , L&G are producing excellent member outcomes for the money received , but they are failing many of their stakeholders – especially small employers.

IGC failing small employers

L&G are one of the most widely used workplace pension providers in the UK, this is because they set up many large auto-enrolment schemes in 2012-13 and continued to be active in the mid to small scheme market well into the staging process. They took on relationships with the Federation of Small Businesses (FSB) and promised exceptional service to employers through payroll integrators ITM and PensionSync.

But since 2016 , I have charted a steep decline in its service offered to employers who are required to comply with regulations on auto-enrolment. Many employers complain of not being able to speak with L&G, of sharp increases in the cost of using the link with ITM and third parties (typically IFAs and accountants) complain that their reputations are being tarnished for recommending L&G in the first place.

L&G’s value for money assessment does not take into account the employer’s experience but it should, especially when the employer is spending as much money sorting out payroll issues as it is in contributing (something I’ve heard more than once).

The IGC seem quite divorced from a central dynamic in workplace pensions , that costs to employers of dealing with them, are costs to members. Money that is spent on workplace pensions that does not reach the member’s pot, is bad value for money.

The Chair Statement completely ignores the train-wreck that L&G’s workplace pension has become to many of its participating employers and this continues , despite my , and many other’s protestations. I brought this up at the IGC member’s meeting this year and was reproved for doing so, I bring it up again now as it remains the biggest failing of the IGC.

Anyone reading this statement on administration who has been involved in the problems of the past 3 years, will wince.

Screenshot 2019-04-07 at 08.39.23.png

The IGC must listen to small employers who have complaints about L&G’s support to them. They cannot pretend it is out of scope. They need to make this a priority.

IGC doing good work for members

I am sorry to have to carry on about employer support when I can see so much improving on the member’s side. Last year I was angry with the Chair’s report for delivering adverts from the communication and ESG teams. This year I am pleased to see the promise of those adverts fulfilled.

I am pleased to see policyholders like me getting more value for money and recognise that the insistence within the IGC’s VFM scoring system on good communications has driven this forward

At present the IGC weights all VFM factors equally. They say they will review this in 2019-20 and I hope they will. All external studies, including the NMG report commissioned in 2017 which looked at what savers valued, conclude that people want good outcomes and the experience along the way is secondary to them.

I am also pleased to see the IGC demanding and getting proper reporting on performance but ask that a summary of the fund tables which includes information on Future World – would be helpful as well.

There’s no doubt that L&G’s IGC are well intentioned and that they are working hard towards delivering better value for money for members, but they really need to work out what they mean by “Administration” , include employer interfaces in that and work harder on the promotion of outcomes based VFM metrics.

There is no reason why they shouldn’t, L&G really is providing excellent outcomes for members- I should know.

I seriously considered giving the IGC a red for ducking the employer admin issues but have given them an amber instead. 

I will revert to red next year if the IGC doesn’t take L&G to task and force it to treat its employers fairly.

 


How effective is the L&G IGC?

I was concerned to read this statement in the costs and charges section of the report

We asked Legal & General to make sure that initial unit charges for Mature Savings members were no more than 1% a year. We were pleased when they did this for active members. But we were disappointed when they decided not to limit these initial unit charges for members who are no longer active.

What this amounts to is an active member discount, something that is illegal for post 2012 workplace pensions (the ones we auto-enrol into). The IGC have not got the legal power to force L&G to treat all mature savers the way, but they have ways of putting pressure on them. One of these is to refer L&G to the FCA.

Whether they do so, depends on whether they feel paid up members of the Mature Savings Group deserve to pay more. If this group of savers are “no longer active ” (contributing?) – it is probably not their fault.

Their employer has most probably closed the scheme or closed as an employer. Why should members be paying more  because of this. Doesn’t this look like L&G charging members to recover costs and is punishing them for what is not their fault really treating customers fairly?

Here is an example of too much weight being loaded into the one word “disappointed”. The report leaves “disappointed” hanging, but I want to see more.

When we read later the rationale for not pressing on this, I am left “disappointed”.

Legal & General considered this (treating active and deferred members the same) but decided against it on the grounds that it wouldn’t be fair to other members of the with-profits fund…

We disagreed with their decision. But as their rationale was not unreasonable, and we recognised that they must consider other factors outside our remit, we decided that we should accept the decision and bring the matter to a close.

I don’t see why the costs of treating customers fairly should be born by the with-profits fund, L&G is a PLC with shareholders who have the capacity to meet these costs from shareholder returns.  What “factors are outside” the IGC’s remit, when it comes to treating savers fairly?

I am not sure that the IGC has pushed as hard as it should have here.

I’m not sure that it’s being totally straight with us about other areas in which it is making claims for itself

Later in the same section we read

We’ve been asking for the drawdown administration charges applied to the members in the WorkSave Pension Plan to be removed and were pleased that Legal & General agreed to do this.

I’m really pleased to see this but I have never read anything in previous IGC reports that was openly critical of L&G’s drawdown charges. I have been very vocal on this matter both to L&G and to the IGC and I’m really pleased that L&G have stopped charging me to have my money back.

For me to be sure that the IGC are really acting in my interests and of fellow savers, I’d like to see something rather stronger than “disappointment” and some transparent criticism of L&G in the report.

However….

In 2018 a lot has gone right for policyholders and the IGC should be credited with having an effective year.

  1. The default fund range is better (including a more responsibly invested version of the default)
  2. The back catalogue of self-select funds has been rationalised
  3. Costs have fallen
  4. The investment administration system has been improved
  5. Oversight of the transition costs resulting from fund restructuring has been effective
  6. Communications are better (especially through the web portal)

The IGC seem involved in all these areas and this report is so much more focussed than last year’s that I am giving it green for effectiveness , with an urgent request to continue the path back to righteousness!

One feels the benign influence of Daniel Godfrey is telling and the keen intelligence and no-nonsense approach to governance of Joanne Segars will hopefully continue this improvement.


In conclusion

The steep decline in the authority and quality of Chair’s reports following the departure of Paul Trickett has been arrested. This report sees the IGC moving back into the black and out of my red-zone.

But it still misses the point on VFM (employers are critical and they are being failed).

It still shows areas where it is ineffective and there are times when the report over-states the mark.

I am an L&G saver and care particularly for fellow savers as I have championed L&G over the years. The inclusion of Joanne Segars on the board is great. The improvement in the Chair report is good and if 2019-20 continues to see the IGC tackling L&G on service and on treating “mature savers” fairly, then they will get a bigger thumbs up this time next year.

 

 

 

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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2 Responses to L&G’s IGC returns to form

  1. Ros Altmann says:

    Henryt, you are absolutely right about the admin issues for small employers. L&G has refused to embrace the advantages of fintech solutions for directly integrating payroll data to pension providers. Its chosen supplier offered no automated data transfer and then left all small business clients in the lurch – or forced them to pay huge extra fees. A cheap alternative is available with pensionsync but L&G refused to agree to invest in the IT work they had to do at their end to make this happen. So clients are still facing manual spreadsheet uploads because L&G, despite promising it would be offering a solution, simply chose to walk away from the benefits of IT that can offer more accurate, efficient and secure data transfer. I suspect the trustees may not even be aware of this and I have kept it quiet so far, but am truly disappointed. Pension auto-enrolment data are full of errors and technology offers much of the answer (not all, but a large part). If pension providers refuse to embrace it and payroll companies or employers are forced to stick to manual entries on CSV files which are then uploaded to the provider, then a Pensions Dashboard will simply not be reliable. Shame. L&G is not alone of course, other providers are not using the tech advances available.

  2. Pingback: This new year – let’s know what pensions cost. | The Vision of the Pension Playpen

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