Lawrence Churchill, IGC chair

This year’s IGC reports have been delayed over an arcane dispute over what constitutes a scheme year (see appendix).  But the good news is the delay will allow for some IGCs to open a debate about what counts for value when we come to spend our pension pot.

From this year, SIPP providers are required to issue via an IGC or GAA a report on their investment pathways, So pathways have swelled the ranks of IGCs which had been consolidating faster than Pension Bee.

The first IGC report to reach me is Vanguard’s and it’s got to me thanks to IGC chair Lawrence Churchill , its first Chair. Vanguard have an IGC , despite not providing workplace pensions; that’s because the Vanguard SIPP offers pathways to the unadvised to help them choose how their pension pot is spent.

Though this figure’s not quoted in the report, Churchill tells me that only 5% of  Vanguard’s eligible SIPP holders are actually using these pathways. The SIPP is recently launched but even so Churchill tells me that he could get all his pathway followers on the bottom tier of a double decker bus. While this may not be representative of the country as a whole, it suggests that investment pathways are yet to capture the imagination of the investing public.

Vanguard are certainly taking its governance duties seriously and have established a heavyweight committee that includes Churchill , consumer champ Dominic Lindley and Law Deb’s Anna Eagles. It will be interesting to see if they are deployed as Churchill’s Prudential IGC team were, to exploit individual specialist knowledge.

The Vanguard IGC report.

With the SIPP and the pathways so little history, the report is inevitably light on analysis. At times there’s a sense of “why are we here” in Churchill’s narrative.

Vanguard believes (and the IGC has seen no evidence to
challenge this belief) that its customer base is likely to be
weighted to the mass affluent and high net worth cohorts
who are likely to be investing only part of their total wealth
with Vanguard and whose investment beliefs coincide with
the funds which Vanguard offers

When it comes to the methodology they employ, the trustees have decided to play a straight bat and adopt the guidelines endorsed by the FCA for workplace pensions, analyzing;

a) The design and performance of the investment fund
b) The charges levied for the investment, including
transaction costs
c) The quality of support services delivered (including
customer communications)

But the Committee say they are keeping an open mind and might use a different approach if investors are interested in other things. It may be that the FCA are interested in a different approach, we will know in a the next few weeks, when the TPR and FCA reveal the results of their consultation on value for money.

For now we have one of the clearest VFM assessments I have seen.

Despite Vanguard and the IGC’s view that the customer base in neither inexpert or vulnerable, the Committee point out deficiencies in risk disclosure and are not shy in pointing out that Vanguard are behind the pace (as most American fund  managers are) in integrating ESG factors.

Not so successful is the disclosure of charges and the benchmarking against rival propositions.

Anonymizing firms 1,2 and 3 neuters the comparison and dilutes the impact. If we are to believe a claim in the report that Vanguard have the lowest costs and charges for balances under £100,000, then why not show this properly?

Whether anonymisation is a decision of the Vanguard IGC or under instruction from the FCA, this is not in the consumer’s interest and I hope that Dominic Lindley in particular will push for more explicit information.  Though  i am no fan of MaPS pathway comparison site (on which Vanguard don’t feature), it does at least make costs and charges explicit.

What is needed, beyond this table.is a comparison of performance on the same basis. But we dont’ get this. Instead we get some tables which are pretty meaningless

Without comparisons with rivals, these are just numbers and the report more or less admits that the imputed benchmark of CPI+3 is a token benchmark.

The IGC has taken a pragmatic reference
point for assessing their value for money to see whether
growth has matched the Consumer Prices Index +3% pa.
As can be seen from the table, this hurdle rate has been
surpassed for all the cumulative multi-year periods shown

The FCA needs to come up with a better way of comparing value than this. The DWP are trying in their Value Assessments for member of small DC schemes but we are still looking at performance in an abstract not experienced way. Especially with the decumulation pathways, what matters is performance experienced by members.

Where the report is at its most interesting is in its analysis of the support given by Vanguard to members taking decisions on pathways.

Customer research clearly indicated that there was no single ideal communication solution which suited all customers. As a
result, Vanguard has instigated a process whereby all
customers choosing a Pathways solution have to speak
with a Vanguard Consultant who can check understanding
and help the customer to make an informed decision; the
Consultant also recommends that the customer speaks
with PensionWise. The conversation with the Consultant is
a mandatory part of the drawdown process.

To what extent this is Vanguard de-risking itself from harmful consequences of poor decision making or alternatively, an attempt to encourage “informed choices” I’m not clear. More importantly, I don’t think the IGC has formed a view on this either.

Conclusions

I have over the past six years used three metrics to assess the reports I read.  I will continue to use these metrics this year.

This is, as is always the case with Churchill reports, an extremely clear report which is easy to read and it gets a green for its engaging communication of what it has to say

I am not sure that the IGC is doing all it can to analyze the likely outcomes of using these pathways. I don’t like the anonymity of the charge comparisons and I’m underwhelmed on performance reporting. Even in its early days, I think the IGC could be more effective, so I give it an orange for effectiveness.

The VFM reporting is excellent and I give it a green. I hope that it will be more effective next year, with some real data and hopefully a little help from the FCA.

Afterword.

Thanks to David Hare of Standard Life and Phoenix for pointing me to the FCA’s relaxation of this year’s reporting rules

David tells me that “As a consequence, you may find that many/most IGCs won’t say much about 2021 product launches in their 2020 report”. If that is the case, it is a shame, these investment pathways need to be integrated into IGC reports. Pension pots are for spending.