The best test of the value of an IGC or an occupational trust board is to imagine how things would work without one. Before 2015, insurers ran workplace pensions for multiple employers using the bald trust of a GPP operational interfaces that were what the employer saw. For bigger employers, insurers bespoke communications and can offer an employer specific default fund but no one acted purely for the member. The IGC was supposed to change that.
The occupational pension scheme now comes in two guises – single employer and multi-employer. Unlike a GPP, an occupational pension can provide defined benefits and will be able to provide semi-defined benefits under CDC. The trustees do the same job whether they oversee a single or multi-employer scheme though the level of scrutiny they are under from regulators varies according to the level of guarantees in the benefit and whether the trust is set up by a single employer , or more commercially for multiple employers.
It’s my view that IGCs and Trustees are as effective as they have to be. If no-one takes any notice of them, they lapse into irrelevance – which is frankly what’s happened to most occupational DC trusts, some master trusts and even one or two IGCs.
I believe that without these fiduciaries, the workplace pensions we invest our money into , would be run for the benefit of anyone but members. Left to their own devices, consultants, platform providers and fund managers would so erode the value of our money that the money we have to purchase a pension at retirement – would be severely reduced.
Proof of this is what happened before modern governance and regulatory supervision arrived.
The work I have done in 2019
Over the past three weeks, I have read, re-read and reported on the IGC reports produced by the providers of workplace pensions in the UK. These reports do not cover all the pensions we invest in, there is a substantial group of providers who do not have IGCs, it includes SJP (which has a mini- IGC) and many SIPPs that do not operate in the workplace. These products are supposedly “advised”, though the FCA is concerned that many of them have many participants who have lost or sacked their advisers and have very little protection from malfeasance.
I have read these reports with an eye to three things
- Engagement – is the report readable and is its tone engaging
- Value for Money – “is the report properly assessing the value you are getting for your money?”
- Effectiveness – does the report show the IGC robustly pressing for better for policyholders.
I have scored each factor red , green or amber and tried to remain consistent with the work I’ve done in previous years and can present my findings for the fourth time in the table below. I am happy to share the table with anyone who wants the spreadsheet – which includes URLs for every report still on the web. firstname.lastname@example.org – (no firewall).
Transaction costs – a mixed picture
2019 was supposed to be the year when we saw how much we really paid for fund management- not just the fees to the managers, but the cost of the management itself.
In some reports we did. L&G showed that you can get cost data from external managers (though their report did give us the kitchen sink). Others managed to give us edited highlights which worked rather better. Fidelity showed a before and after table – which demonstrated how the Fidelity default reduced in cost after discovering last year that members were paying more in transaction costs than to the fund manager. Some reports gave up on getting these costs – which was disappointing. The most bizarre reports were those who discovered high transition charges but wouldn’t tell policyholders which funds had them!
ESG – a start but only a start
The reports all had something to say on ESG, but we have yet to see the fruits of this engagement. While some IGCs (L&G and Aviva in particular) have focussed on ESG in prior years, this year every report ticked the box – and many only ticked the box.
I look forward to a time when we don’t have to talk of responsible investing as an alternative form of fund management but look at ESG as an integral part of the value managers bring. Only when ESG is part of the VFM assessment – will it be fully integrated.
Too many of the reports still talk of the risks of adopting ESG, not enough of the risk of ignoring it.
The wider context
The terms of reference for IGCs were set out in 2015, since then we have seen huge changes in the pension landscape.
One example is the extent to which DB rights have been exchanged for DC rights through CETVs. Very little of the billions transferred found its way into workplace pension. Part of the reason for this was that financial advisers prefer to use vertically integrated self invested personal pensions. Part of the reason has been a reluctance from employers and providers to promote the workplace pension over more expensive alternatives.
I am disappointed that IGCs have not extended their terms of reference to consider how these plans could be promoted to people transferring. This goes as much for master trusts as workplace GPPs. There is a job to be done to compare the available workplace pension with the promoted advised solution and perhaps this is something the FCA will look into. It would be better if the IGCs (and occupational trustees) , got on the front foot.
Reactive or proactive?
The best IGCs are proactive, looking for new and better ways to assess value for money and improve outcomes. They look at best practice in communication.
But I sense most IGCs are more interested in meeting the requirements of the FCA, rather than going beyond.
It would be good to see IGCs looking at workplace pensions capacity to help people spend their pensions (rather than rely on transfers to specialist drawdown products, annuities or “cash-out” to bank accounts.
It would be interesting to hear the thoughts of IGCs on the opportunity and threats to their policyholder from CDC.
The FCA have said they are looking to extend the scope of IGCs to cover decumulation and non-workplace pensions, it would be good to see IGCs pushing to do more for policyholders and encouraging the FCA to give them greater responsibility.
It has been a great pleasure reading this year’s crop of IGC Chair Statements. During the year I’ve got to meet most of the Chairs and they know how keen I am to help continuous improvement of both the Statements and the work that goes on throughout the year.
To be relevant, IGCs have to be read. It is too much to be expected that the become general reading for policyholders, but there is no reason why IGCs shouldn’t be more in their faces.
Thanks for reading this, please promote the work of IGCs and interact with yours. They are the best way ordinary people have of improving value for money for their workplace pensions.
The same can be said of occupational trustees, who I hope to put under similar scrutiny in months to come.