Workplace GPPs, incompetence not governance drives policy.

The argument in a nutshell nutshell

The FCA has decided to relax rules that would have made the management of workplace group personal pensions very difficult. These GPPs are run by insurers and a few GSIPP operators (Hargreaves Lansdown most prominently). They had argued that their products weren’t meant for this kind of disclosure and the FCA listened and agreed.

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I actually agree with the argument that the GPP and GSIPP operators are putting forward. However I disagree with the relaxation of disclosure requirements. It is not disclosure that is wrong, it is the product. It is not disclosure that should change, it is the product.

Why so many funds?

The tend towards unlimited fund choice goes back to the early 1990s when the concept of open architecture first took hold. Actuaries worked out that you could make as much money out of a product reinsuring someone else’s fund and offering it at your price on your platform as manufacturing the fund yourself. Organisations such as Skandia realised that insurers were better as fund distributors than asset managers and sold the public what we might now called “platform as a service”.

The regulators looked kindly on this, not digging too deeply into the commercials , but seeing unlimited choice accross from broad range of asset managers as a “good thing” for consumers.

The reality was quite different. The underlying funds were loosely wrapped by insurers but execution could be awful. The performance gap between the underlying fund and the insurer’s (reinsured) version could be 1% pa or more. The crimes against the consumer were manifold

  • Extra fees for the wrapper
  • Poor execution (most purchases were arranged over a fax machine)
  • Contributions kept in suspense accounts
  • Liquidity held in the wrapper (rather than the fund)

These problems could be magnified when the consumer was presented with a fund of funds where contributions could trickle through a variety of structures , each with dilution levies that sucked the lifeblood out of any performance gains.

These open architecture platforms soon became a racket and gave rise to a new , cleaner form of open architecture offered by technology focussed platforms such as FNZ, Transact and Cofunds which sped up transactions , cut down on costs and reduced the need for reinsurance.  These new light-touch platforms were adopted by SIPP providers like AJ Bell and Hargreaves Lansdown which quickly improved standards all round.

Well not quite “all round”. So long as advisers could be paid commission, the old style GPPs were valuable – at least to those who sold them. There became an art for insurers in paying advisers through complicated charging structures that meant insurers remained attractive – even when their products weren’t. The most artful of these structures was the ‘active member discount” which was basically a tax on people who changed jobs.

When the commission gravy train hit the buffers at the end of 2012, commission continued to be paid on products sold prior to the introduction of RDR and it wasn’t until 2014 that the charge cap and the abolition of the heinous “active member discount” saw workplace pensions become “safe havens”.

By then , advisers had all put disappeared from the workplace. Without commission on new sales, advisers stopped selling or advising on GPPs. The huge fund ranges which had been set up to give advisors something to talk to policyholders about, remained and do so to this day. They are an obscene relic to three decades of mis-management which has had everything to do with volumes and margin and nothing to do with value for money.

Insurers an SIPP providers will now try to bury the bad news about legacy funds in IGC reports (which they’ll do their best to make sure no one will read). Even if people do read them, there’s no certainty the IGCs will present the information. Read the 2019 OMW IGC report as testament.

Why people like me , Ros Altmann and Jo Cumbo are angry

The workplace providers who lobbied against proper disclosure on these funds are being lazy. These outlying legacy funds serve no useful purpose, like the Rump Parliament they are hanging around for no good reason, I am reminded of Oliver Cromwell’s speech

Ye sordid prostitutes have you not defil’d this sacred place, and turn’d the Lord’s temple into a den of thieves, by your immoral principles and wicked practices? Ye are grown intolerably odious to the whole nation; you were deputed here by the people to get grievances redress’d, are yourselves gone! So! Take away that shining bauble there, and lock up the doors.

In the name of God, go!”

That is the speech that the FCA should have made to the insurers and SIPP providers, replacing MPs with “non-disclosed funds”.

To my friend Tom McPhail who is trying to quietly usher us away from the scene of the crime,

I would be Cromwell

“Is there a single virtue now remaining amongst you? Is there one vice you do not possess? Ye have no more religion than my horse; gold is your God; which of you have not barter’d your conscience for bribes? Is there a man amongst you that has the least care for the good of the Commonwealth?”

For Tom knows that if a precedent can be set in this Policy Statement that allows platform providers to plead “too hard, too heavy” here, they can plead this elsewhere.

We are angry because platforms and fund managers are given a licence here to duck disclosures elsewhere. If they have licence, so do advisers operating DFMs and so 15 years hard work getting to MIFID II and PRIIPS is undermined. If this is the shape of post Brexit regulation to come, then I will have none of it – nor I suspect will Ros or Jo.

Between them , the IGCs and the FCA could have done for the GPP fund legacy what they did for exit charges. Instead the FCA has let incompetence and laziness drive regulatory policy and it’s a damned shame.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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