Vanguard’s IGC, led by Lawrence Churchill became the first to publish its report for 2023 last month, it leads the pack by a margin and the IGC should be congratulated for producing information in a timely fashion. If AI can give us answers in seconds, why should IGCs take the better half of a year?

An IGC for 294  out of 500,000 customers

While the numbers of Vanguard customers who fall within the scope of the report is multiplying, they don’t represent Vanguard’s overall business or even its pension business. The 296 are the number who are following investment pathways set down by Vanguard, they are who are to be measured (officially)

The 296 are up from 153 the previous year and represent 7 rather than 6% of Vanguard customers in drawdown, so the IGC is chained to report on a small sample of investors, unrepresentative of Vanguard’s wider customer base who are presumably advised or do their drawdown themselves.

Churchill immediately breaks these shackles and announces he will be referencing the wider Vanguard SIPP in assessing value for money which he usefully confines to the guidelines laid down by the DWP, TPR and FCA. He comments

The issues which the regulator expects IGCs to comment
on are continuously evolving and have been extended in
recent years, driven predominantly by issues within the
workplace pensions market.

There is no Vanguard workplace pension , the IGC is underused.

IGCs are required to:

Take into account all three key elements of VFM;
costs and charges, investment performance, services
provided including member communications.

1. Assess and report on VFM through comparisons with other options on the market.

2.  Consider whether an alternative would offer better VFM.

3. Assess whether VFM is being achieved.

4. Explain how VFM has been assessed and keep relevant evidence for at least six years.

But the IGC is not reporting quite this way, Churchill explains

that We believe that the FCA/DWP decision to report
investment growth before charges are deducted is a
retrograde step as the growth reported is not that
experienced by customers

So reporting on the funds is NAV to NAV, net of expenses, with gross income reinvested. This is entirely right, it is good to see common sense prevailing.

Churchill and the IGC are also iconoclastic in using a recognised external benchmark to compare performances with reasonable expectations

We also compare their performance against a growth
standard consisting of consumer price inflation (CPI)
+ 3 percentage points over the long term. We find that
the market downturn experienced in 2022 has reduced
the rate of real growth and only the longer dated (2040
and 2045) Target Retirement Funds pass this growth
standard over five years.

In holding out against those aspects of the DWP/FCA/TPR proposals, Churchill may be fighting a losing battle, but it his fight to have, as an IGC chair at the Prudential , he pioneered the use of external benchmarks and net performance reporting and he is to be commended for sticking to his guns. I gave the VFM report a bright green for being intelligent to me both as an expert and the kind of person who uses Vanguard.

Does this report read well to Vanguard customers?

Not one customer is using a pathway to an annuity, that doesn’t mean customers aren’t buying annuities, they just aren’t choosing a traditional annuity lifestyle pathway.

153 customers are using Vanguard’s drawdown pathway, 100 are simply rolling up their fund for the next generation while less than one in six is looking to cash out their plan (and typically those with smaller pots). It’s useful information.

It’s fascinating to know that 77% of all Vanguard’s SIPP investors log on to their account each month and that their average balances, despite Vanguard being a new provider is higher than the ONS average for personal pensions at retirement. This suggests a lot of consolidation is going on and Vanguard customers really do “do it themselves”.

The report is not well written but it is interesting and intelligent. I can imagine the average Vanguard customer wanting to read it from end to end. It gets a green as an engaging document

Is the IGC effective.

The IGC report is supposed to shown not only a proper analysis of the value savers are getting for their money in an intelligible way, it is also expected to show that the IGC is  effective in fighting the saver’s corner.

There has not been a single complaint about the investment pathways from Vanguard’s customers, Churchill concludes

Based on the data and analysis in this report, the IGC
concludes that Vanguard is offering good value for
money to its investment pathway investors. We have
not discovered any other provider offering better value.

In drawing this conclusion, the IGC acknowledges that
longer term fund performance net of all customer borne charges continues to deliver real returns.

Vanguard’s cost and charges are also lower than most
competitors and we believe that the quality of its
services are at least on a par with alternative providers.

The report is a good one, it is only 12 pages long but says what it needs to say succinctly and with the personal style of its chair. This has not been written by Chat GPT.

We cannot criticise the IGC for finding no fault with Vanguard since their remit is limited. Personally, I would have liked to see more comparisons with master trusts but since the master trusts still don’t have to offer at retirement options, I can understand why they are not made.

It is both the first and probably the easiest report to write but that does not mean it is not an effective report, the IGC may not be finding fault , but it is asking the right questions in the right way. It gets a green for being effective

Lawrence Churchill