Sid Vicious didn’t last long at Virgin when the Sex Pistols flirted with the record label. His relationship was as stormy as the Virgin Money’s IGC is with Virgin Money. Things are vicious once again , even if the Pistols and this IGC go about things in different ways!
Last year the Virgin Money IGC became the first to publicly escalate an issue to the FCA and the problem still isn’t fixed. In a strongly worded statement , VM’s chair, Sir David Chapman has this to say
There is ongoing frustration at the lack of progress being made on how the default strategy is invested. This is from this year’s IGC Chair Statement
You may recall that last year the IGC had found it necessary to involve the Financial Conduct Authority (FCA), the regulator responsible for overseeing stakeholder pension schemes.
We expressed our views regarding the difference of opinion between ourselves and the Provider about the suitability of the scheme’s default strategy. While we were also concerned about fund costs and fund performance the default strategy was our main area of contention.
After several further communications with the FCA, a series of meetings took place between the Provider and the regulator, initially without the knowledge of the IGC, and these continue. To date there has been no definitive outcome. The IGC is in dialogue with the FCA on the matter and both parties are aware of the urgency of the situation and the need for a speedy resolution to our concerns.
Things aren’t getting easier for Sir David as VM embark on a joint venture with Aberdeen Standard which will see the workplace default find itself in a new fund structure. But delays in the JV have been created by the sale of VM to Clydesdale Bank. So the new default doesn’t look like hitting the ground this decade.
As you will have gathered , the VM IGC doesn’t pull its punches and its written in a tone that both engages and enrages. It is the most campaigning of any IGC report and none the worse for that. While others sit on the sideline and moan or – worse – justify bad practice – the VM IGC gets stuck in – it gets a green for the power of its prose and the good humour which it just about manages to maintain.
Value for Money
VM’s IGC hasn’t a complicated job, it looks after one product – the Virgin Stakeholder plan in which there are around 20,000 remaining savers.
The Value for Money assessment is a fairly standard affair (apart from it calling its product provider for its failings).
Costs have fallen , servicing’s fine , funds aren’t great and the default strategy is a mess.
Every policyholder gets a hard copy of this statement through their letterbox. It is the best circulated IGC per capita of any.
It’s a limited value for money assessment but, for all that – it is doing what it says. It gets a green for its statement,
How effective is the VM IGC?
I am sure Sir David and his team would answer “not as effective as we’d like to be”. The outcomes of years of neglect of the investment default of the VM Stakeholder Plan do not make for pretty reading
To sport a racing term – VM is whipping the others in. The fund is still invested in accumulation in UK equities, gets none of the benefits of diversification accross other markets and (net of fees) is underforming more than gross of fees – the fees are still too high despite them falling slightly over the year.
Things get even worse in the period coming up to retirement where the plan still anticipates the average saver annuitising and is therefore investing them into funds that invest in gilts and bonds.
Following the IGC’s referral to the FCA, Virgin Money started a conversation over this with the FCA (unbeknown to the IGC it seems). Just where these conversations led isn’t clear. Certainly no remedial action has been taken to diversify or realign pre-retirement allocations to reflect the use of pension freedoms.
A charge on the IGC for being ineffective is unfair, if a charge is to be made it it to Virgin Money and the FCA. While talks continue, member outcomes continue to deteriorate
Nevertheless, so long as this sorry state of affairs continues, I’ll have to call th VM IGC less than effective, though that appears to be a systemic problem with IGCs capacity to deal with a reluctant and insouciant provider. I give the report an amber for effectiveness, (but it would get a deep green for effort)
Not a problem with this IGC , but a problem for IGCs
Virgin Money is not the only product proposition that is underperforming, within the portfolios of many large insurers there are pockets of poor performance and high outcomes. The workplace book of Old Mutual is all pretty much failing its policyholders.
But Virgin Money’s IGC is the only IGC that has publicly whistle blown on its provider and I’m sorry to see so little impact of that bold move over the year. Recently I wrote of the FCA’s complaint that not enough of its stakeholders were blowing the whistle, the response on social media was immediate and forceful.
IFAs tell me that whistle blowing doesn’t work. The VM IGC is inferring this and so long as the FCA continues to fund its entire whistleblowing team at less than the salary of its CEO, it will continue to skate on thin ice – when criticising others.
The message to the FCA is clear, the VM IGC has called the problem , now act to put things right. Virgin Money should be in “special measures”, why not put the IGC in charge?