I have spoken to some frustrated IGC chairs this week who consider they are being used for a purpose they never signed up to – principally to drive down the cost of saving into workplace pensions.
This puts them in an invidious position since the people who levy the charges , use those charges to pay the IGCs. Talk about biting the hand that feeds!
The IGCs terms of reference do not include the disclosure of the charges being levied on savers in “employer schemes” and one IGC chair I spoke to yesterday , challenged the notion of an employer scheme (there being no references to such a thing in the FCA’s COBS rulebook).
But it has been clear since the late 1990s that workplace pension providers offering services to larger employers did compete on price and those prices were governed by scheme metrics (average contributions per member and overall size of membership).
There is no mechanism to up prices where the membership is less profitable than expected but there is a mechanism to renegotiate prices where a scheme increase in value to the provider and this mechanism depends on an awareness from the employer that better can be had either from the existing provider or elsewhere.
Till now, that awareness has been very low among employers and this is why the FCA have decided to use IGCs to improve the leverage employers have on employer scheme pricing.
Will this work and should it work?
If IGCs were campaigning organizations like Which or indeed this blog, then they would happily have embraced their new remit and ignored the technicality that “employer schemes” don’t exist.
But IGCs have always struggled to be batting for the members, they are at best umpires and often a part of the marketing team of the provider. The argument used is that IGCs promote value and are not about reducing the money that pension savings cost.
I think that the value you get from your pension increases as the money you pay for the savings decreases but that the primary focus for everyone should be the member outcome.
Despite my best endeavors to focus IGCs on measuring member outcomes and keeping employers and members informed on how they are doing, the IGCs have not seen this as part of their jobs.
Which is frustrating as they see the benchmarking of value for money , which is central to the entire thrust of pension disclosures, as little more than the benchmarking of charges.
I understand that the IGCs plan, next year, to provide a benchmarking service to savers they represent which will explain the charges they are paying relative to other savers.
This reminds me of the money helper investment pathway comparison site which simply compares the cost of the various drawdown options and makes no attempt to compare the value.
The approach that the IGCs seem to be taking is infact reducing the value of pension saving in the same way, which deflates the most important aspect of such saving – the return on investment and indeed the good that investment can do.
IGCs should work to promote value and reduce costs and should be fearless in raising awareness among savers and employers (especially as most people representing employers are savers in their own right.
The FCA should promote value as well as the advantage of reducing costs. Right now, both IGCs and the FCA appear to be at loggerheads.
There is only one loser in this- the member.