Style, tone and content.
Scottish Widows has great if somewhat laddish marketing , thankfully it has an IGC that is interested in what it is delivering to its policyholders/members. This IGC report continues an improvement evident over recent years.
Scottish Widows has published both an annual report from the IGC and a statement from the IGC Chair , which confused me! The Annual Chair’s Report is 44 pages and the Chair’s Statement a mere 5, the report contains the bulk of the analysis but mercifully not the tedious analysis of costs and charges that so inflates other reports (most noticeably the Phoenix ones). It is a smart move for the IGC to publish this information separately on its website
The report is well written and – importantly – written for members. It includes information on what a workplace pension is and how one works, information that is well worth including if you think members will read your report. From reading it I realised that a pension provider is required to tell you how the pension is supposed to work , the IGC however tells you if it’s working well.
I am happy to give the report a green for its style and tone as it feels like it’s written with me in mind!
Value for money assessment
The value for money assessment tells you how your pension is working and the IGC conclude that it is working very well, overall they rate your workplace pension experience four stars out of five with a detailed breakdown below.
The IGC is unusual (though not unique as Prudential have done this) in assessing value from investments using inflation as the benchmark to beat.
During 2021, Scottish Widows started to use a
measure of inflation called Consumer Price Index (CPI)
to benchmark the default funds. This will make it easier
to understand whether the fund is delivering value for
money in the future. We are pleased to report that there
has been a positive performance against this CPI+
Declaring value for money when CPI is 1% and your fund picks up 15% is easy. But this year CPI will be 10%+ and the average fund looks like returning heavily negative performance. CPI is not a good benchmark for savers, they want to know if they did well with Scottish Widows or if they could have got better value elsewhere.
The report says that the IGC subscribed to the Redington benchmarking work, which confirmed to Scottish Widows ,as it seems to have done to all participants, that the pension is working very well. The IGC also took a look at the Corporate Adviser survey and tell us
Scottish Widows’ most commonly used default fund delivered 15.4% growth in 2021. The performance of major competitors’ funds ranged from 7.5% to 16% in 2021.Three-year performance was 11.9%pa. The performance of others in the survey ranged
from 7%pa to 13.2%pa.
I am pleased to see the IGC also asking savers what they want to see by way of an assessment of value for money, we’ll find that out sometime in 2023. The answers to these questions invariably come back to how much money is in the savers pot , relative to the amount they’ve put in. This information only becomes meaningful if savers can compare their experience to “counter-factuals”.
- Would I have done better if I’d been in another fund or pension scheme or with another employer?
- Did I do better or worse when I invested elsewhere?
- What is the cost to me of choosing another fund or scheme and is it worth it?
The idea of “value for money” assessments is to answer questions that lead somewhere, knowing that you have or haven’t beaten CPI leads nowhere, knowing that Redington or even your IGC Chair thinks you are getting VFM leads nowhere or – to the sceptical- to the thought “they would say that wouldn’t they!”
I mention this , not because I don’t think Scottish Widows care about VFM – actually I think they do – but because they are currently searching for an idea of what members want. I don’t feel qualified to opine on many things but – having been in this game 40 years and having spent time understanding this for all of it – I do know what people think about when considering their pensions.
Most people haven’t got a clue whether their pension is any good and that is a cause of deep frustration. In as much as Scottish Widows are struggling to this conclusion , I give them credit, that they are still looking for a viable answer to the question “how do we measure VFM – I rate them highly. Though this year’s VFM assessment does not tell people much, I will give Scottish Widows a green – for not giving up!
Scottish Widows has gone from a basket case to one of the better workplace pensions over the course of the last 7 years, it runs a reasonable master trust and its GPP is pretty good.
In many ways it is market leading – for instance in integrating with parent LBG to provide fund values on Lloyd’s banking app – that may not mean much right now, but it shows that Scottish Widows are preparing themselves for bigger challenges, around the Pensions Dashboards.
I would like to say that this improvement is down to the IGC and to some extent it is. But this report does not suggest that the IGC is hugely on top of its game in getting things done. It moans about the slowness with which fund simplification is going on, about falling service standards in the call center ( a common theme this year) and that ESG integration has “only just started”. However some of the statements in the report suggest that the IGC really doesn’t know what “good” look like.
The Redington market comparison study noted that
Scottish Widows has communicated a target to increase
investment in companies adapting their businesses to be
less carbon-intensive and developing climate solutions by
2025, and is signed up to 10 initiatives within the ESG
sector, more than most of the other participants.
I will commend the IGC for its diligence in pursuing a proper way to measure value and its way of talking to its readers but I don’t get an impression that it is particularly effective in moving the dial at the life company. I give it an amber for its effectiveness and refer it to the statements of David Hare and Ian Pittaway for examples of zealous indignation when things aren’t going to plan!