L&G has a new IGC Chair and Joanne Segars has the unenviable task of reporting on 2022, which by any standard – was not a vintage year for DC savers.
Unfortunately , L& G did not have a vintage 2022 either. You may wonder why we are commenting on 2022 in October 2023 but the IGCs have been allowed to put back their reporting from March/April to September/October and that’s just tough on us savers who clamour to read these reports.
I’m clamouring because when I read L&G’s 2022 report (on 2021), I read this
I wrote at the time that I hoped this happened early in 2022 and not later in the year
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
I have quizzed L&G on this for the past 12 months and was told to await the update in the 2022 IGC report. So here we are. What did happen to those 380.000 policies in the 15 year gilts 10 year lifestyle?
The 2023 report goes to some lengths to show us that the 2022 report did pick up on the promises made in 2021 but the fate of the people with these policies is not mentioned.
Fund closures and launches identified as a result of this review will take place during 2023 and the IGC will monitor the progress of this work.
• 2022 was another year with significant market uncertainty. Enhanced monitoring was re-introduced, particularly where there could be an impact on members’ investments.
Throughout the year, Legal & General consulted with its independent investment adviser and continued to share its processes for managing your investments safely.
The extensive Default fund review promised in 2021 – happened in 2022 but when?
Legal & General moved 380,000 members out of the Multi-Asset Lifestyle into the Multi Asset Fund which better reflects how members take their benefits.
The Multi-Asset Lifestyle was designed mainly for customers who did not want to make an investment decision and
who were likely to use their retirement savings to buy a guaranteed lifetime income (known as an annuity) and take tax-free cash at retirement.
This lifestyle strategy no longer reflected the current trend, where fewer members choose to buy an annuity.
Fine but when did the switch take place?
We were kept informed on progress; Legal & General shared its approach and the member communications with us ahead of the change. The switch between funds was managed carefully to avoid impacting services provided by the operations team and to minimise costs for members.
This is emphasised in the report
Independent investment advice was also taken by Legal & General to ensure the switch was performed at an appropriate opportunity.
There is no detail about how these 380,000 members got on in 2022. Here is a chart of how that 15 year gilt yield behaved over the course of the year
To be clear, what we need to know is when on this timeline , the fund was switched and how much of this enormous fall in unit price was crystallised by members.
This time I will be asking L&G’s IGC to investigate and to make a statement on this default. As the decision to move the money out of 15 year gilts was made in 2021, I want to know when the trade was executed and what the delay meant to savers in this default.
Nobody get’s left behind?
The L&G IGC report looks at the defaults that employers can choose today
But what about the people left behind in legacy defaults such as Multi Asset/Over 15 year gilts 10 year lifestyle (snappy title)?
Which of the four multi-asset default variants contains or contained the reformed fund? Or is the old default now retired and unreported?
Every single one of the L&G default funds has underperformed its “comparator”.
Reference to the Corporate Adviser League tables shows just how badly the “default default” did in 2022.
Savers in the Multi Asset Fund got dismal returns in almost every timeframe, not just relative to the average saver, but to their equivalent savers in the L&G master trust.
Here are the CAPA results for 2021
Following the default review , the IGC has this to say about the situation
The statements are riddled with inconsistency and come to no conclusion. Take this paragraph
Taking all the above factors into account, we concluded that you received acceptable value. This is because despite outperforming its comparator and achieving its risk target over the longer term, we believe that there is room for improvement in terms of
investment performance over short and longer periods. We also believe that members who invest in the default fund would achieve an acceptable outcome at retirement.
Whoever wrote that must have been as confused as I am reading it. I know Joanne Segars and Mark Ashworth well enough to know they do not suffer from inarticulacy.
I am left befuddled and bemused. Is MAF to remain the default – what action is proposed?
Our view today is that the existing design and performance of the standard default fund, the Multi-Asset Fund (MAF) is acceptable, but that there are possible areas for improvement, particularly in terms of the amount of risk taken when members are younger. This is being considered as part of Legal & General’s triennial review of the default funds
Savers should expect more, inaction is not an option – something that L&G remind us of.
Why this matters.
L&G is one of Britain’s largest workplace providers and should be setting standards. Their IGC should be setting the standard but it’s not.
Instead of real insights into value for money we get a lot of pictures that satisfy us that they know what Diversity and Inclusion is. We get a lot reassuring narrative. But when we get to the pinch points – the bit that matter to savers like me, we are fobbed off with half-baked tables and bland statements that avoid the real issues. This suggests to me that the IGC is behaving ineffectively and is more interested in style over substance.
I would add that this is not a well produced PDF, it is unstable and hard to navigate. The IGC report does not convince me that L&G is producing value for money (though it may be), it is not a document that I enjoyed reading and the IGC does not demonstrate that it is having a material impact on improving outcomes.
I think this is a poor IGC report and give it a red for its VFM assessment, an amber for its readability and an amber for its effectiveness.