Old Mutual IGC- “it’s all down to us”.

 

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Old Mutual VFM4

In an extraordinary opening statement, Richard Butcher, Chair of Old Mutual’s IGC has this to say.

Our overall conclusion is that a majority of you get value for money from your Old Mutual Wealth workplace personal pension and that, on average, the value policyholders get has improved.

The value you get, however, depends, in part, on you.

Where we have concerns about policyholders potentially not receiving value for money, it is generally because a policyholder is not actively engaged in managing their pension and/or an adviser managing their scheme is no longer actively engaged in doing so.

This report includes a number of important ‘Calls to action’. Please look at the ‘Calls to action’ as they could improve the value you get.

This is an admirable statement. DC passes risk to members and it’s beholding on IGCs not to pretend to be able to take that risk away. Richard Butcher’s honesty is a great way to engage members.

I admire the simplicity of Richard Butcher’s approach which is straight talking and helpful to members.

I particularly like the testing of member outcomes and the way this is presented

The amount of money you get back from your policy is, of course, crucial, so, we assessed how the investment returns compared to various other measures.

For those policies that are inforce, have matured or surrendered, we compared the returns to:

• The rate of price inflation

• the total sum of the contributions you paid in

• what you would have got back if you had put your savings into a savings account

• what you would have got back, minus a reasonable allowance for charges, had your contributions been invested in the FTSE All Share Index

Here are the results (% of members beating the test):

Inflation 92%

Contributions 97%

Savings account 89%

FTSE All Share 74%

If only more IGCs adopted such a simple approach. It would be good to see the details of this work as there are a number of ways of working the numbers.

The Chair’s statement is a very good read and I found it most engaging, I give the report a green for his tone.

Sadly, a good read is about all that I  can praise this report for. It seems primarily written to absolve Old Mutual (now Quilter) of accountability for the horrors of its workplace pension book.


 

It’s all down to you

This is the value for money assessment of the Old Mutual IGC

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Note that default investment choices are (in OMW IGCs world) the responsibility of financial  advisers and that individuals have the responsibility to self-select where the default underperforms

Note that some policyholders are using the wrong kind of funds and the IGC will be “monitoring” this .

Note that people with smaller pots should be reviewing their options to transfer.

The Chair concludes

Where we have concerns about policyholders potentially not receiving value for money, it is generally because a policyholder is not actively engaged in managing their pension and/or an adviser managing their scheme is no longer actively engaged in doing so

It really is down to you.


Value for Money Assessment?

The report does spell out the OMW value for money framework, there are quite a few criteria relating to performance and risk which the IGC is supposed to apply. There is nothing in this report confirming how many funds went through the IGCs process of analysis and how many passed muster.

Charges disclosure

In line with the Chair’s statement, it is possible to reduce your charges with Old Mutual but it’s down to you. If you are paying commission on your policy, it’s down to you to stop those payments by contacting OMW and telling them – IT’s DOWN TO YOU.

If your fund has been put together by an adviser, you may be paying for your adviser’s fund management. You may not be getting any fund management. If this is the case Old Mutual may have written to you to say your not getting value for your money but – you’ve guessed it – IT’s DOWN TO YOU to contact Old Mutual to get a reduction in your charges

You have to look very hard to find any facts or figures in this report, it is full of calls for action but when it comes to the key metrics of value for money – what you get and what you pay – there is very little. You have to make it to appendix 4 to get a summary of all these charges

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The vast majority of policyholders are paying around 1.83% in overt charges. What they are paying overall is hidden because the IGC does not show readers the transaction costs in this table.

Amazingly , the IGC report ducks disclosing these charges . It’s only numbers appear to be guesses.

We are told that “some data has started to become available and we are hopeful we will see much more over the coming months and year”

and this enables the IGC to

“conclude the majority of policyholders are incurring transaction costs of between zero and 0.55% a year. On average policyholders are incurring 0.15% a year.

On the basis of this chooses to make a further extraordinary statement

On average the charges paid by Old Mutual Wealth policyholders are higher than those paid by policyholders of other workplace pension providers. By and large, this is because the investment funds used by most of Old Mutual Wealth’s policyholders are managed by firms other than them.

The number of policyholders who have their investment funds managed by the pension provider is very small. There is nothing unusual about Old Mutual outsourcing fund management to third parties and that does not excuse Old Mutual from operating workplace pensions at such huge cost.

And let’s be clear, these charges are far from inclusive. Aegon have confirmed that one of its default funds has hidden charges of 0.91%. There are many funds in the Quilter range that – according to research by Alan and Gina Miller’s True and Fair campaign with hidden charges of 1% or more. That means that some Old Mutual policyholders may be paying more than 3%pa to manage their pension . That’s around the target return of some occupational pension schemes. Even if it is paying for financial advice, that is way too high to be considered value for money.

The only possible benchmark that might put OMW funds into

This VFM is a dereliction of duty from the IGC. I am taking the unusual step of calling this a red and I urge the FCA to intervene and censure both OMW and their IGC for not properly disclosing either the true cost or the impact of those costs on policyholders.


 

Is this IGC effective?

I don’t see an IGC as endorsing a policy where policyholders have to apply to renegotiate charges. We are in a world of defaults, if there is clear evidence that a policyholder is being charged for advice or fund management which they are not getting, it is up to the provider to put things right. Inertia works for the share not the policyholder.

Similarly, it is not enough for OMW to stand by and watch as policyholders are diminished by unsuitable investment policies. OMW have identified policyholders who have been in cash for decades and (with their IGC) are calling on Government to do something about this. If these customers are paying for advice and not getting advice, then OMW might get their sister company Quilter to provide advice through what it called the Quilter network- paid for by the commissions diverted.

An effective IGC could be exploring such options  rather than repeating the mantra, but once against , here is the call to action, suggesting instead that further advisory costs be incurred.

You should check to see if you are one of the policy holders with a large investment in cash deposit fund and take advice on whether this is right for you.

This IGC is not effective for savers. It meets the needs of Old Mutual to have an IGC and is useful in de-risking the toxic impact of high charges and lax fund governance.

I don’t see much evidence that the IGC is doing anything for the member at all except passing on the message that its IT’s ALL DOWN TO THEM.

I give it a red for effectiveness.


In conclusion

This is not the first time that I’ve had a go at the OMW IGC. I am not sure whether anyone at OMW reads my reports but I’m not seeing much of an improvement.

Richard Butcher is an amazingly busy man , he does a great deal for pensions but he seems to be spending a minimal amount of time on this job. The other independent members of the IGC, Ian Costain ( who I know well)  and Mark Latimour (who I don’t), seem to have little input.

Perhaps OMW should apply for its’ IGC to be downgraded to a GAA, for on this evidence, the IGC is just not doing its stuff.

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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4 Responses to Old Mutual IGC- “it’s all down to us”.

  1. John S Mather says:

    there is a bigger picture which is not really addressed in the UK have a look at this analysis from the US we are not that different and it might explain the dissatisfaction in the population todayhttps://www.linkedin.com/pulse/our-biggest-economic-social-political-issue-two-economies-ray-dalio

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

  3. Majority of policyholders appear to be paying around 1.25% surely? But a good chunk are paying around 1.83%.

  4. henry tapper says:

    How so Stephen? 77% of policyholders in “PP4” with overt charges of 1.83% ? Or is that 7.7%? In any event the annual costs for most policyholders way above acceptable levels to other IGCs

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