L&G’s IGC have published an excellently produced and easy to navigate IGC report that tells people exactly what the IGC think of L&G at a glance.

Value for money assessment

The  problem I have with the document is that it has nothing in common with the experience I have with L&G nor with my firm’s analysis of the value they are offering to members of their workplace pensions.

My problem can be illustrated by on one table, the only comparative performance table in the report.

If you find this hard to decipher then let me explain,. the Multi- Asset Fund – where the vast majority of L&G’s workplace saving is invested , has underperformed in the past three years. Relative to the benchmark it has been set – it is failing.

Now let’s look at what the IGC is saying about these numbers

No results from this benchmarking appear in the report (unless they were in the performance figures above). It appears that the IGC was satisfied that the default fund , the MAF or “multi-asset fund” has done well against similar funds of competitors.

While this may be the case, the exam question is whether it has delivered better outcomes than default funds of other providers.  Here let’s turn to the Aviva IGC report where comparative returns are displayed

Here it can be seen that relative to other default funds, L&G’s MAF is underperforming. We have already seen that the MAF is underperforming its benchmark over 1 and 3 years , but now we see it is underperforming other funds

Now. let’s turn to the Corporate Adviser default fund survey (which LGIM quote above as supporting the claim that MAF has good performance). MAF is only working for those close to retirement – it is a disaster for younger savers.

As a result of this analysis, the IGC has chosen to give L&G a “good” rating for the value created by investing member’s money.

I don’t get that good rating, the good rating is being given for a default fund that is underperforming its benchmark and its peer group. I can confirm that AgeWage scoring also has MAF languishing for all but for the oldest savers.

Just what does MAF have to do to be rated bad value for money? Why doesn’t the IGC provide us with comparative numbers as other IGC reports do and as the FCA demand? Why are the few comparative numbers in the report, so hard to find?

Anyone who has followed the progress of the valuations of 15 year gilts in 2022 would want to be in this legacy fund but I fear that by the time this fund is promised to be closed  (2023) substantial value will have been lost – estimates of the capital loss of over 15 year gilts funds range from -25% to -30% since the start of the year.

The IGC report is silent on this.

The reporting of value for money within the Legal & General workplace savings plans relies solely on the relatively low costs of LGIM funds and above average member support services, but the impact of underperforming funds , means that by any quantitative holistic measure of VFM , L&G are failing the bulk of their customers/

It’s good to see that the IGC will look at VFM reporting as a 2022 priority. I hope that we do see an improvement because the 2022 report on historic VFM is shocking, I give it a red for its value for money assessment.

Effectiveness

The IGC is under a new chair this year, Joanne Segars is taking the helm and this is her first report. It is unfortunate that the report arrived in October but only covers the period till the end of 2021. Since then the average value of a DC pot has fallen substantially, most disastrously for those stranded in long dated gilts.

It appears that a huge number of L&G policies are still in such a strategy

Has this change happened? The IGC report does not comment. So far this year the value of  15 year gilts has plummeted as yields have gone up fourfold.

IFAs are right to complain that such strategies are like “dinosaurs from a bygone era”, L&G and the IGC seem to consider the closure of 380,000 policies directing customers to an annuity product they most likely will not use, isn’t a priority. It has been 8 years since the announcement of pension freedoms.  The maintenance of 380,000 people in annuity driven strategies  does not look like the proper exercise of the consumer duty to me.

When did L&G close out the 15 year bonds and what price did members get for their holding?  The IGC report gives us nothing on this

Delivering a report 9 months into the year with no update on this hugely important change to 380,000 people’s pension pot does not show this IGC as effective. For all the obvious work going on by the IGC in monitoring the workplace pensions, the impression given is of  Legal & General’s behavior being beyond the control of the IGC.

I hope that my concerns are groundless, but if the third bullet point has not been actioned early in 2022, many of those 380,000 members will have been in a totally unsuitable investment which may have lost them a quarter of their accumulated savings.

I hold my breath and give the IGC an amber for its effectiveness. If the legacy issue has not been properly resolved , that becomes a red.

Tone and Content

The report is relatively short (25 pages against Aviva’s 76). It contains a lot of pictures but not a lot of fact. The section on Investment Pathways is sketchy and there is little information in it to help me assess whether I should use L&G for decumulation rather than anyone else.

The tone of the report is professional and suitable for its purpose. The report is well presented and easy to read. It has good navigation and makes good use of links.

All this is to be expected of one of the largest workplace pension providers but it is still good to see, I give it a green for tone and content.

Conclusion

L&G were once great champion of the IGC and its early reports were excellent. More recently reports have been variable. This report is poor.

I wonder about L&G’s commitment to workplace pensions. I see an organisation that has massive distribution through the major actuarial consultancies and through third party products. But L&G is still using legacy systems for its modern products and its communications look increasingly clunky (there is no app for workplace pension savers).

The IGC is no longer a leader, it now appears to be not much more than a monitor. It doesn’t look effective and it looks to be passing off the underperformance of its principal product – the default fund that drives growth as “good”. The performance isn’t good – it’s bad.

So I say that the IGC and its Chair’s report are falling short of what policyholders should expect. As such a policyholder I consider this report and the IGC are letting me down.

Falling short