The Prudential’s IGC – put to the test.

Bruce Rigby – the Pru’s new IGC chair.

I have enjoyed Laurence Churchill’s five reports for the Prudential IGC and I’ve enjoyed Bruce Rigby’s first one. My respect for the reports has been based on the IGC’s focus on what matters.

The IGC’s current approach to VfM takes account of
a range of factors, including investment performance,
costs and charges, and service and communications.
These have been weighted to reflect our view that
what ultimately matters is the outcome for Members

What matters for Members is that they have as much money in retirement as possible.

Unfortunately for Members of Prudential Workplace pensions, there is little evidence that their money is best with the Prudential and considerable evidence that Prudential are not taking their duties as seriously as they should. This matters, despite the Pru having been inactive in competing for workplace business throughout the staging of auto-enrolment, they have a large number of savers depending on them

The difficulty for the IGC is that they have adopted since outset a very simple measure of success. Can members receive a return on their savings of 3% above CPI (the lower measure of inflation). With inflation levels over the past 6 years being so low and with global markets enjoying very healthy growth, beating their benchmark has been only too easy.

So the focus has turned to more complex measures of success which are outlined in the investment section of the report. Under the Churchill regime, the report’s individual sectors were written by IGC members rather than the chair and this has worked well.

Mary Kerrigan has taken over from John Nestor writing this all-important section and she has been handed reporting on a year Prudential and their investment managers M&G – will want to forget.

I’m not quite sure if the headline quite talks to what this means for member outcomes. What it means is that compared to other savers in 2020, Prudential members have had a bad year and this is  Prudential’s “bad”.

It would be better if the report just got on and said this, but instead it gets dragged into the kind of arguments fund managers use , explaining that relative to what they were trying to do – they did quite well

Some funds underperformed as they employ a value style approach to investment management. This approach to investment has underperformed generally in recent years. However, when compared against the equivalent value style benchmark, performance is broadly in line with expectations

Put a better way, “stock-picking isn’t working for us and hasn’t for some time”.

Rather than revert to a simple examination of what member outcomes have been (by exploring the returns of individual members against an outcomes based benchmark), the IGC is looking at a huge range of measures which leave the member behind

The results of this detailed research aren’t published , but I suspect it confirms my earlier assertion, that Prudential workplace Members would be better off elsewhere.

For how much longer , Pru members are expected to put up with under-performing funds is not clear, but no end is in sight and the problem with that CPI+ 3 benchmark is that the market resurgence from the beginning of this year, means that the underlying problem may be swept under the carpet.


Another major area of concern

Apart from the initial summary, Bruce Rigby also takes on the reporting on Prudential’s servicing of its workplace pensions. I am pleased to see he has pulled no punches. It is well known that the Prudential has not invested into this area of its business and it has left its Members suffer appalling waits for services that could and should be on-line.

Members will find scant comfort in news that the cavalry is on its way

But the position has to more than improve , it has to be transformed.

I hope that Bruce Rigby is speaking with the FCA about this and that action is being taken , both to change underperforming defaults and to transform the service proposition which right now should be regarded as failing. This is when an IGC really counts.


Conclusions

The report is well written and despite it being written by committee, it is consistent in its tone and style. It retains the high standards of previous years and gets a green for readability and tone.

I applaud Mary Kerrigan and Bruce Rigby for recognizing deficiencies in Prudential’s investment and service propositions but I worry that the IGC may rely on easy benchmarks, easy service standards and on external reports that homogenize all workplace pensions as “giving value for money”. I feel that the focus on member outcomes could be slipping and I would like to see a more effective approach to sorting out these problems emerge. I feel the IGC is only partially effective in its reporting , for which I rate this report orange.

Unusually, there is no statement in this report as to whether the IGC considers Prudential are giving Members Value for Money. What we have is conditional

Assuming these servicing issues are resolved in
the near future, the IGC judges that you continue to
receive Value for Money from your Pension.

The VFM diagram makes this assumption

I’m not so sure that this assumption can be made and I think it would have been better if Bruce Rigby kept some red in the “Overall Value for Money score”. I give this report an orange but not a green, the failings are too serious for the rating given.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to The Prudential’s IGC – put to the test.

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