IGC’s class of 2023

This year that I only gave one  red score to an GC report. This is because the  IGCs are  operating to a proper standard and trying to do its best for their consumers. The red that was given came from persistent non-disclosure of an item that materially impacts savers. IGCs need to be clear about detriment.

Some reports were weak in their explanations, some dull in their delivery and some looked like they had little control of what their providers were doing, but only one of the reports was broken – considerably down on previous years.

That said, I think that IGCs could and should be pushing harder for innovation , not for the sake of innovation but because propositions cannot stand still while the world around them moves on. Innovation cannot simply focus on fancy member communications, it must improve member outcomes and the fundamental experience that members get from saving and spending their pension.

Governance is good when it protects people from risk and bad when it serves no purpose but to tick boxes on risk and compliance registers. Some IGCs were overlong on box-ticking but not many.

Short on innovation

When the Chancellor announced an industry led compact committing many of the UK’s largest Defined Contribution (DC) pension providers to the objective of allocating at least 5% of their default funds to unlisted equities by 2030, he might have expected a word or two about it when the insured workplace pensions came under the scrutiny of their IGC reports.

Although the reporting period for the 2023 reports was 2022, the reports were delivered in September and are only getting read now, several month after the Mansion House speech.

The reality is that in well over a 1000 pages of reporting, I have found no references to any such objective. Innovation is not a word that appears in IGC reports, other than in the engagement of savers in the need to save more and think more about how they spend their savings. 10 years ago, I wrote a blog on here that suggested that by 2025 , personal pension administration would be on the blockchain. I was wrong.

Wherever administration is occurring, it is not occuring in the contract-based workplace space.

I have read the IGC reports of Vanguard, Royal London, L&G, Aviva, Standard Life, Phoenix, Reassure, Scottish Widows, Aegon, Prudential and Hargreaves Lansdown and it is clear that innovation in the sense Jeremy Hunt was talking of – is not happening in the space governed by IGCs.

Long on governance

The major job of IGCs is collecting data and presenting the findings from that data once a year through a Report – designed to be read by members, actually read by compliance officers , me and I hope a few stakeholders keen to see if their workplace pension is offering value for money.

Rather than compare the market themselves, the IGCs have formed their own Compact and handed the job to Redington who provide anonymised analysis back to the IGCs. This generally confirms that the providers under the microscope have given value for money using the three tests suggested by the DWP and the FCA in their VFM assessment framework. This framework is a 2023 innovation that got as far as the IGCs. Innovation in governance is more readily adopted.

A few surprises

The quality of IGC reporting is pretty high, the committees have been going round the loop 8 years now and for some of the Chairs, this is their sixth report. Veterans such as Kim Nash, David Hare and Ian Pittaway now have their own styles. Other reports, such as Prudential’s had a style set for it by a strong IGC chair (who has now moved to Vanguard).

There are maverick reports where you genuinely do get surprised. Scottish Widows employed Anna Bradley to review their proposition. She has been handed a poisoned chalice but – with the help of a strong team – made a good fist of protecting Scottish Widows from further damage from poor service. It was surprising (and helpful) that she got the job. Similarly , Richard Butcher’s quirky report on Hargreaves Lansdown said rather more about HL than I’d have expected.

But the big surprises surround the impact in 2022 of the collapse in gilt and bond prices over the year, especially following the mini-budget in September. Some annuity protection funds fell over 40% in value. This was sometimes reported (as LDI was reported) as ok, because the cost of buying a pound’s worth of annuity income had fallen even more, meaning that even after losing 40% of your fund, you’d still be “better off”.

This may be “ok” if the consumer has taken a conscious decision to purchase an annuity and is buying a hedge. But it is not ok if the consumer is stranded in an annuity hedging fund as part of a default arrangement. With only 10% of those with personal pensions buying an annuity, the vast majority of savers left in annuity hedging defaults by the end of 2022 – will have cause to ask why.

Some IGCs seem reluctant to report on the phasing out of annuity hedged lifestyle plans, I fear that there is more on this to come. There are some nasty surprises – especially in the legacy books.

What of the future?

I often here the phrase “not fit for purpose” bandied about when talk turns to IGCs. But where would we be without them? The OFT 2013 report into workplace pensions classed most employers as vulnerable customers, knowing little about the workplace pensions they were buying and less about governance. The IGCs protect employers from the jeopardy of future class actions and they protect members from Equitable Life style disasters where insurers get out of their depth.

The 100 page reports produced by some IGCs may be boring and largely unread, but they are the sourcebook for large employers such as British Telecom to start-ups such as my companies. They are the mechanism to ensure that while savers may not make optimal decisions, they do not see their savings crash and burn.

Of course some savers will lose out, get scammed or even lose their shirt on an annuity hedge, but that should be the exception that proves the rule.

The future of IGCs is more of the same. We need these reports and we need to make sure that the people writing them, know they get read. I’m pleased to see that many of my reports have also been read and it’s good to see that a number of the links to the IGC reports have been used.

I fear that for most providers, the GPP- like the Stakeholder pension before it – has become a legacy product with what innovation is happening, happening in the master trust space. But that doesn’t make the money in the GPPs of any less value, or devalue the role of IGCs.

I will be publishing my final assessment of individual reports later in the week