IGC Chairm – Lawrence Churchill
Vanguard is the first of the IGCs to publish its 2022 report and is doing so for the second time, being the only non-workplace pension to go the extra mile with an IGC rather than the baby brother GAA.
The non-workplace pension is now known as a SIPP but is more properly an individual rather than a group personal pension. The peer group that Vanguard considers itself a part of is listed in one of reports appendices.
AJ Bell
Aviva
Fidelity
Hargreaves Lansdown
Interactive Investor
L&G
Pension Bee
Scottish Widows
Standard Life
Willis Owen
I will be looking to report on the IGC and GAA reports of these providers as I have done in previous years. The non-workplace pensions had an exemption from providing a report last year , though Fidelity, Aviva, Standard Life, L&G and Scottish Widows had an exemption last year (they having insufficient numbers following the investment pathways for the reports to be meaningful.
The purpose of a non-workplace pension IGC/GAA report.
The FCA have roped in firms such as Vanguard , Pension Bee , AJ Bell and Interactive Investor into the reporting framework because they offer investment pathways on a non-advised basis to consumers.
The numbers committing their savings to investment pathways is still pitifully small. Lawrence Churchill, Vanguard’s IGC’s chair reports that at the start of the year there were only 65 investment pathway clients compared with Vanguard’s total UK investor base of more than 400,000. This had increased to 84 by the publication of the report. As the Chair likes to joke, these clients can now fill both tiers of a London bus but it has some way to go before filling the Neoplan Jumbo Cruiser – at 18 metres (59 ft) in length, 2.5 m (8 ft 2 in) wide and 4 m (13 ft) in height, it is in the Guinness World Records as the world’s largest bus with a capacity for 170 passengers. There is scope for this measure for next year’s report.
Only 5% of Vanguard’s customers are using the pathways and none has yet used the annuity pathway. Vanguard report that one provider has 1000 customers using a pathway but relative to the millions who have crystallised their savings (analysed by the FCA’s Retirement Income Study) suggests that these pathways aren’t anywhere near becoming the standard way people invest for their later life.
What of the Vanguard IGC report?
Churchill’s summary is well worth reading as a piece of writing. He has a wry style which is laconic , almost ironic.
The FCA require us to examine whether better value for money is offered by other investment pathways providers. We can report that, in our opinion, Vanguard does offer good value for money. We have not been able to identify another provider who offers better value.
Sadly, though the report includes a scatter plot of the relative risk adjusted performance of their rivals, Vanguard’s rivals are anonymised. The decorum of providers is not to name and shame. This tradition of being polite to each other, let’s hope next year we will see those names “coloured in”.
Vanguard’s clients in drawdown have a typical asset balance of £171,000 and it’s interesting that clients who don’t intend to drawdown anytime have larger balances while the drawdown rates increase dramatically , the smaller the pot. It would seem that people have a need for income that becomes more pressing as wealth diminishes. It will be interesting to see if this observation holds good with other providers.
Vanguard’s clients don’t get it easy when they want to get at their money
All clients entering income drawdown without taking
financial advice must be offered four investment
pathways among their options. They are asked what
they plan to do with their pension savings within the
next five years and to choose the investment pathway
that best fits their current retirement goal.
It doesn’t end there
From the mandatory interviews conducted with all
drawdown investors ,we noted that unprompted awareness of
environmental, social and governance (ESG) issues
was low.While we recommend that Vanguard does
further research on prompted awareness, the IGC
infers that there is no evidence to show that ESG is a
major concern for investment pathway clients.We are confident that the access to PensionWise
(which forms part of our drawdown process) has
either been taken up or deliberately declined.
All of this is good. The IGC is on top of its brief, is looking to go the extra-mile (I note with approval it is prepared to look at alternative ways of measuring performance).
Where the report is weak, is touched upon in the paragraphs above. The IGC , and by extension Vanguard , seem to regard ESG funds as needing to exclude certain stocks. Vanguard has only just started introducing such funds (like most American fund managers they were cowed by climate-change deniers and the gun lobby from excluding anything), but the IGC cannot bring itself to call the stewardship exerted on fund managers as the exercise of ESG. Here the report reads weakly.
The IGC should be concerning itself with the stewardship of the passive fund investments and benchmark Vanguard against other passive managers whose funds form the investment pathways of its peer group of workplace and non-workplace providers.
I cannot argue that Vanguard offers VFM but I am clueless as to how it manages its obligations under its stewardship code (if it has one).
In summary
The report is a delight to read, it has the elegant tone of Churchill’s Prudential reports. It gets a green for style. It’s VFM assessment gets an amber which reflects its good work on comparisons but it is less good on VFM and it would be improved for the inclusion of the names of its rivals on comparative tables. It terms of its effectiveness, it sounds like the IGC are on Vanguard’s case. The IGC demands more in terms of client information than it is getting.
As an online execution-only digital platform, Vanguard
appears to have less well-developed information and
systems for gathering investor information than one
would expect.
I have no doubt that the insights in next year’s reports will be based on this information. The Vanguard IGC looks highly charged and is serving its consumers as it should, it gets a green for its effectiveness.
