Making IGCs relevant – FCA’s consultation

 

The FCA has published a consultation on whether to extend the remit of IGCs to monitor a life company’s engagement with Environmental, Social and Governance issues and to have oversight on the default investment pathways for non-advised drawdown.

 

Making IGCs relevant

The consultation also has a section on how IGC Chair Statements should be promoted.

It’s very possible that more people will read this consultation report than read all the IGC reports put together. That’s because IGCs have more relevance to compliance teams than the people they are written for

Who does the FCA thinks reads IGC chair statements? Those with good search skills!

The reports in the trade press are typically a rehash of the press release from the provider, but most of these reports have to be googled and none of the reports I have read this year has said anything about the report’s distribution strategy.

The FCA’s bright idea is to have the IGC report featured loud on the life company web-page. Which suggests we bookmark life company web pages and visit them. That might have been the case 20 years ago, but right now people demand more.  The FCA should publish a catalogue of weblinks taking you to IGC reports – just as I do (thanks to the many people who’ve requested my spreadsheet – henry@agewage.com).

IGCs 2019 bright +

Full spreadsheet with live links available on request – henry@agewage.com

TPR should be similarly be publishing Master Trust and Own Occupational DC chair reports.

Each report should be shareable on social media and IGCs should set themselves “read” targets, because if you don’t measure your readership, you have no indication at all of your relevance.

 

ESG- IGC – it’s the same G.

The Law Commission made its recommendations that IGCs should get stuck in on responsible investment in June 2017. A year later the FCA agreed , publishing a response in July 2018. Now, nine months later we have a consultation with a view to actually making something happen in October 2019.

If we adopted these timeframes to the real world , then we would have no chance of meeting the Paris Accord. Climate change is happening and will continue unabated if we don’t take immediate action. The IGCs (and trustees of occupational pensions) should be in the vanguard.

The FCA are asking the same questions this blog has been asking since 2015, why isn’t it taken as normal that default funds invest responsibly , have ESG benchmarks and why don’t IGCs report on ESG issues as a matter of course?

Why do IGCs still consider ESG as a standalone option. Why does L&G which has an ESG friendly version of its multi asset default fund, not use it?

With the exception of NEST, the same can be said of master-trusts, to my knowledge only HSBC has taken real steps to offer a responsible investment fund as the occupational pension default.

Why – nearly two years on from the Law Commission’s authoritative report, are we still consulting on whether to implement its findings?


A pot is a pot – we need consistency on how we spend out retirement savings.

The FCA wants pension providers to offer default investment pathways to people who want their retirement savings back but don’t have the money, time or inclination to pay for a financial adviser. Depending on which data set you look at , that’s between 94% and 70% of those retiring today.

The default position wanting their money back is not to take advice. Without an adviser, the drawdown of funds is a matter for each of us and most of us haven’t got a scooby how to invest to provide a wage for life nor how to assess the correct level of income to drawdown to make our money last as long as we do.

So getting life companies to help out is a step in the right direction. Putting the IGCs in charge of how the life companies go about this is no bad thing and I support the FCA’s plan to extend their remit to do this.

But I note a theme throughout the consultation that the FCA want to work with the Pensions Regulator and I question whether investment pathways are quite what TPR have in mind for default decumulators.

Currently only a handful of occupational pension schemes offer drawdown and they are not embracing default investment pathways or helping their members set drawdown levels. Instead most occupational schemes – including the large master trusts  are shunting members off to financial advisers , offering access to annuity brokers and at best operating the Alliance Bernstein retirement bridge that offers a deferred annuity plus a time bound drawdown.

Some (Smart) are planning to do more but most are sitting on the fence, arguing that the numbers retiring from relatively immature DC arrangements does not warrant investment in pathways.

So we have no consistency between what insurers and their policyholder are doing and what occupational schemes and their members are doing.  Indeed the DWP are already talking about extending a new decumulation option – CDC – to occupational DC schemes – including master trusts.

I have no problem with investment pathways, they seem an interim step to something that actually provides insurance against living too long (CDC). They may lead to later life annuitisation (as Retirement Bridge does). In an imperfect world , they are the best option for now.

And IGCs can and should have oversight on how the money in the workplace pensions they oversee, is spent.

But we need to have consistency between what is going on with contract and trust based DC retirement options. That means the FCA (and IGCs) getting to grips with CDC as a concept and TPR (and Trustees) doing more to promote investment pathways to their retiring members.

Right now , the options you get when you want to start spending your retirement savings depend on factors that ordinary people have no idea of. It should not be different to spend a pot from a master trust, an own occ DC scheme , a personal pension and a SIPP.

Pensions Wise was set up so that everyone had a clue what to do, it’s failing. We need to get a grip on decumulation  and while getting the IGCs involved in overseeing investment pathways is a step in the right direction, the job of getting joined up is a much bigger task than the FCA and tPR are letting on. We need some proper joined up thinking here – there is a case for the  pension commission to sit again.

In conclusion

This consultation is not the end of the story, we are promised the long awaited review of the effectiveness of IGCs by the FCA later this year. Those who can’t wait can read my blogs. IGCs are in need of nurture and they need fresh purpose so I welcome this consultation.

The IGCs are hugely important, their work deserves better promotion and their reports should be distributed and the distribution monitored. The IGCs should have been monitoring and enforcing ESG from day one, I’m glad we’re getting close to recognising that but it shouldn’t take more than two years since the Law Commission, for the FCA to act. The investment pathways are a step in the right direction and I support the IGCs overseeing them , but we need a coherent strategy across trusts and contract based providers that includes all post retirement options (including CDC), before we have a proper platform for choosing an AgeWage.

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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