“Vantage is value” – but relative to what? Hargreaves Lansdown’s IGC report


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I’m pleased that after a really poor first IGC report, the Hargreaves Lansdown IGC have taken producing their 2017 report, more seriously.


A smooth operator

If there was such a thing as a premium workplace pension, the Hargreaves Lansdown (HL) Corporate Vantage product would be it. It’s top on price and its top for engagement. HL customers (of whom there are 75,000 with over £2bn under management) are very engaged – a whopping 1600 of them responded to the IGC’s recent survey on value for money and nearly 60% are registered to use the Hargreaves Lansdown website to view and manager their pension.

Less than three quarters of those using Corporate Vantage use the default fund, again showing what an independently minded bunch their customers are. Having spent a summer at the organisation, I know a little about the culture which reminds me of (the best bits) of the Equitable Life culture. In terms of controls, quality of communications and ease of use (to members) Hargreaves Lansdown is a standard setter.

I was slightly disappointed that the report paid less attention to the employers who have chosen Corporate Vantage and are responsible for passing contributions (under auto-enrolment) to the SIPP. Managing and improving the employer interfaces is part of HL’s value proposition; an inefficient interface causes expense to an employer and this can only be passed on to members in a negative way (education and contributions).  It would be good to see HL adding this to the “to do” list for 2017-18.

But in terms of demonstrating effective governance, the IGC report does a good job and I give it a green.


A peculiar perspective on value for money.

The IGC approached the managers of the active and passive defaults (Schroder and Black Rock respectively) for information on the costs of managing their respective funds.

Either no numbers were received or they have been with held, but we are reassured that

“both managers have emphasised their commitment to minimising transaction cost , they being a drag on performance”.

This is an alternative way of looking at hidden costs which are often used to subsidise other parts of the business. I am not particularly comfortable with the presentation of the Corporate Vantage charging structure

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Reading this, I was totally confused by what the Hargreaves Lansdown discount had to do with the price of fish. I was further confused by the inference that there were no charges to pay on cash (when clearly a clip was being taken from interest).

The report criticises HL for not being clear, but I found the IGCs own reporting little better. I will be interested to find out how much Schroder’s active transaction costs take the total fee paid by members using it as the default over the 0.75% charge cap. With a sceptical hat on, I suspect that the number may not have been published for that reason!

Overall, I thought the IGC did a pretty poor job of investigating (or at least demonstrating its investigation) into value for money. I am still confused where the total fees are going and I have no performance data within the report to make up my mind where value is being achieved. I am giving the report a red for value for money as either the IGC are being credulous or they are hiding something.

Interestingly, the report focusses on the response of the survey of members and comments that around two-thirds are very happy with HL, the rest were unable to say whether Corporate Vantage was good or bad.

HL survey.PNG


A lack of perspective

When it comes to the tone of the report, I consider it a little insular, by which I mean it talks to HL’s customers as a breed apart. But the majority of the 75,000 members of Corporate Vantage aren’t there because they chose to be but because they work for an employer who chose the plan. While employers (in Pension Playpen’s experience) chose Vantage to be suitable for their workforce, that doesn’t mean all members are as financially savvy as those making those choices.

The report would do well to talk of Corporate Vantage within the context of other workplace pensions and understand the high numbers of don’t knows as people who have little experience of workplace pension alternatives.

In short, these people may well be asking the IGC to speak to them of Corporate Vantage relative to external benchmarks and not as an “island unto itself”.

This is a minor criticism in terms of tone and perhaps another reason I feel the report is weak on the value for money question. Never the less , it marks down what is otherwise a well written report from a green to an orange.

One final thing, the stock photos and the heavy blue front page do make this report look only too corporate. Perhaps in future editions , the presentation of the material can be a little more member-friendly.


the report can be linked to from this page.  http://www.hl.co.uk/company-pensions/igc

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Can pensions be more playful (please)!


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three of our actuaries at play

 

I’ve waded through a number of IGC chair reports this Easter weekend and a smile has seldom  been on my lips. With the exception of the Virgin Money report, I hardly felt I knew who I was talking to. Ironically, while I know most of the IGC chairs, I don’t know Virgin’s. The capacity of an individual chair to engage a reader is often down to very simple things. Virgin’s IGC report opens with a simple message.

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It needs to be said! Virgin’s is one of the few reports that can be found by simple navigation from its website (just press the workplace pension tab on the homepage).

As a consultant, I will be encouraging our clients (employers) to read their IGC reports, though with some reservation! I will be encouraging employers to publicise the reports to staff (with similar reservations).

I will be encouraging these people to contact their IGCs and tell them what they think of their workplace pensions and the work of the IGCs themselves. Otherwise these boards will become as distant as the remuneration and audit committees of the companies in which we invest.

But there is little interactivity in these reports. I have read a lot of statements but hardly any questions. A general request for feedback is generally found at the back of the report, but I have yet to see a report that has so much as a poll in which the reader can participate.

I cannot remember seeing any digital publicity for any of the IGC reports. Other than my reports, facebook, twitter and Linked in have been IGC free.

Retirement sets you free, a pension helps you enjoy that freedom,  messaging on pensions (even when playful) sings a joyful tune!

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The feedback that the IGCs say they want might be gathered from any number of social media sources. Instead of trying these out, the IGCs have resolutely stuck with paid for market research from the tried and tested market research sources.


Please be more playful.

I listened on the radio this morning to a discussion on naming. I know many people who name their cars but I’ve never heard a pension have a name (other than something really boring). I will hereafter call my workplace pension with L&G “George” for no good reason than I can. I will insist that since it is a personal pension, others refer to it as George as well. L&G can continue to call their workplace pension “the Legal and General worksave pension” but my one will be called George.

I’d like to see the IGCs be prepared to stand up to their providers and be provocative. I hear plenty of talk of being challenging but precious little of these reports disrupts the insurer’s business as usual. Legal and General’s workplace pension report of 2016 remains the one report which lost it with its provider and very entertaining Paul Trickett’s rants were. I don’t expect all reports to be that assertive, but there are opportunities to chide tardy insurers in a playful way, and to call the provider names!


Playful but not flippant

There are ways of engaging an audience through play (we try to do it at the Pension PlayPen). I see the banner at the top of this blog as just such a way. But the intent of play can and should be serious.

Gaming is integral to product marketing, it always has been, but today’s digital world makes for so many more opportunities.

Unfortunately, the IGCs have taken to heart the Government’s instruction to talk to its customers but once a year. Many use this opportunity to list the various activities the IGC has got up to in the past twelve months.

How much more interesting had these activities been announced as they happened, with opportunities given for people to feedback through games. Whether by email,Facebook or twitter , linked in, Instagram, youtube , or Snapchat.  IGCs could engage in simple games with ordinary people asking them to choose on a “what’s best”, “what’s worst”, “what do you think” basis.  “Likes, dislikes and comments” are at the heart of the social media game, but it’s currently a game the IGCs refuse to play.


Never too late to get started

The kind of day to day questions which IGCs (and trustees) should be asking , have a wide audience. There are plenty of social media consultants only too keen to show IGCs how its done and to get things going.

Engaging with an audience in this playful way, doesn’t happen over night. It has taken me 60,000 tweets and 7 years to get 7,000 followers. But the IGCs have the power of their provider’s brands behind them so presences on social media are already in place.

The 2017 IGC reports ask more questions than they give answers to and I’d be happy to help any IGC to frame 20 questions that they could play to us over the next twelve months.


And IGC research shows engagement is key!

If we want to see higher per capita savings levels, if we want to see appropriate fund selection and if we want people to use freedom in their best interests, we need to get them engaged. The IGCs have a part to play, a part which they are simply not playing with their current round of reports (most of which will get a handful of reads).

The IGCs must go beyond their terms of reference to make themselves relevant, the TOR in themselves will not put them into play. To be “in play” , the IGCs need to be “playful”.

I will be making these points to our Pensions Minister who has, I am happy to say, a decent sense of humour!

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Virgin Money IGC report;- now that’s the way to do it!


 

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No messing

Last year’s report from Virgin Money was the best I read and this year’s report looks like it might make it a notable double.

The Virgin Stakeholder Pension comes under severe scrutiny

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The report does not pull its punches, it has taken advice from a reputable firm (Hymans Robertson) and is in dispute with Virgin Money about how the default is constructed. Having read the Virgin Money explanation, I am quite with the IGC, I suspect that Virgin have difficulty making changes and keeping the Stakeholder Plan profitable , diversification costs as do the changes, these costs – bearing in mind the product is at the boundary of the cap, will fall to the shareholder.

The report doesn’t go into a lot of detail about hidden costs – I suspect the IGC is too busy sorting Virgin Money’s default out, but it does give policyholders a proper view of how their funds are performing.virgin 4

The numbers aren’t any better for those close to retirement.

Virgin Money 5

How IGC Chair, Sir David Chapman can claim that this performance is broadly in line with industry peers is hard to see – maybe this is dry humour. I am impressed that Virgin’s IGC are publishing the bad numbers.

In terms of lay-out and tone, the report is a compelling read, you skip through its 24 pages which buzz with colour, diagrams and insights. I liked the agenda items dealt with at each meeting.

On the minus side, the report doesn’t have much (anything)  to say about the moral and ethical elements of investments, it talks a fair bit about the importance of NMG’s findings (Virgin were a subscriber), but it hasn’t yet tackled Virgin Money’s engagement  with its policyholders. It would be good to see the same rigorous approach extended to these subjects as is displayed elsewhere in this report.


Conclusions

This is how a low-budget IGC should work. The tone is spot on – David Chapman is authoritative and precise, not a word is wasted. The tone earns a green.

The IGC has a limited job to do, to be effective – Virgin Money is a simpler organisation than- say-Aviva. However, it is getting on with the job with admirable focus. It gets a green.

As for Value for money, I hope more will come next year but this is not a report that moans about lack of help with VFM, it does what it can for now and I give it a green for its progress.

Well done Virgin Money IGC, a top report for a second year running.

You can read it here ;  https://uk.virginmoney.com/virgin/assets/pdf/pensions-statement-of-the-year-2017.pdf

 

 

 

 

 

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The Old Mutual IGC – “impotent and bed rid”


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no – I don’t know what that means either!

 

 

Last year I was enthusiastic about the Old Mutual Wealth (OMW) IGC. I am afraid my enthusiasm has turned to world-weary scepticism that the IGC packs a punch sufficient to push much forward for the members of the various legacy pensions in which 18,500 members are locked.

Only a year ago, OMW were proudly boasting that it would reduce its early exit penalties to 5%. A few months later the Government announced an exit penalty cap of 1% leaving the comments of the IGC chair, praising the adoption of a 5% penalty cap, a little redundant.

I am delighted that they have decided to take a proactive and positive approach to the committee’s findings to enhance the value-for-money they provide to their occupational pension customers

The 2017 IGC report looks a little toothless too. The report concludesOMW

Value for money (we are told by the Chair) is subjective.

As for value generally policies have performed fairly well against these (eg market ) benchmarks. This is taking subjectivity too far, either they have or haven’t performed against benchmarks, the IGC report on value is pretty feeble.

As for money, the IGC doesn’t get to first base

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It seems that whatever the state of affairs, the IGC will be delighted.

 


Incisive but impotent on charges

I like the way the IGC probes OMW on the various policy costs and charges within the portfolio of schemes it looks at. omw5

It is right to push for policyholders to get the full value of the commission saved where an adviser resigns his advisory role. But again the process of resignation is in the hands of the adviser who seems to be the judge of whether he should continue to be paid commission or not.

I like the way that the IGC sets about OMW for its crazy cash default for policyholders who cannot make an investment decision. This seems an utter dereliction of the insurer’s duty to treat the customer fairly. People need to be invested in their best interest and putting a policyholder in cash when some way from retirement cannot be said to be that.

Old Mutual’s response (that policyholders no longer with an employer or an adviser should go out and get advice) ignores the market dynamics for most ordinary people – that there are no advisers wanting to do this work at a reasonable price.omw4

The IGC should call its provider on this. The nearly 2000 policyholders (1 in 9 of those looked after by the IGC) are being treated shabbily and the IGC’s expressions of concern fall way short of the mark.

Unless something is done for these policyholders soon, there is a strong case for the IGC to refer Old Mutual Wealth to the FCA. I doubt that they would be “delighted” to do that.


The NMG research

One of the members of the OMW IGC was instrumental in organising the NMG research (commissioned through Sackers solicitors). I have been extremely uncomplimentary about the research. This may be the reason that Sackers have told us we are not on their short list of organisations to help them with round 2 of the market research. My advice to Sackers would have been to ditch any more of this nonsense and to focus on what comes out of the FCA later this summer so that we can have a non-subjective vFM measure.

We learn from the appendix of the IGC report that a total of 46 people were involved in the workshops which formed a large part of the work. This tiny sample of the 15,000 people who contributed to the bulk of the research revealed (after a day of work shopping) that they’d be prepared to pay more for a quality service and that quality was more important than price. These findings were not borne out by the mass of 15,000 who weren’t interested in price, they just wanted lots of money in retirement.

This tells me what is perfectly obvious, that people will tell you exactly what they want you to hear, especially if you’re standing in the way of going home.

The NMG research is well-meaning but ultimately hopeless, I understand it will not be re-commissioned which suggests that the OMW IGC will have to get out of bed this year.

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I’m giving the OMW IGCs chair report a green for tone (it reads well)

I’m giving it a red for effectiveness – it seems to have spent the last year chasing rainbows

I’m giving it an orange for its work on value for money, as it tried hard to make the NMG report work,

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Meeting the Pensions Minister


Tomorrow (18th April) I get to meet the Pensions Minister, which I’m excited about.

I’d written to Richard Harrington a few weeks ago, after an amendment to the Pension Schemes Bill had been thrown out. I’d helped the Labour Party prepare the amendment which wanted it explicit in legislation that an “employer had a duty of care to its staff to choose a suitable workplace pension”.

Employers have a number of such duties, mainly in the area of health and safety. ACAS produce a simple explanation of them which you can read here http://tinyurl.com/qe5m9q4.

But extending the duty of care to a staff’s financial well-being is another matter. The Government, in arguing against the amendment, explained that the Pensions Regulator gave employers some help in choosing a pension and providing that a choice was made following the Regulator’s guidelines, there was really no need for further employee protection.


A duty of care or an act of good faith?

Speaking with various lawyers on a conference call arranged by the Transparency Task Force, I was surprised to be told that what I was wanting was for employers to act in good faith (rather than to exercise a duty of care).

I’d be grateful for any lawyer or legal expert to explain the precise difference, but from what I can read, acting in good faith is a rather less onerous obligation than “a duty of care”.

Frankly, the degree of the obligation is secondary to their being an obligation. What I am concerned about is that no thought is being put into the choice of workplace pensions, a choice that should be made by an employer.  How we ask employers to engage with the choice of pensions is important. It is about getting the best outcomes for staff, as well as avoiding the worst.


The knowledge gap on workplace pensions

In my view, the capacity of staff to make reasonable decisions for themselves is extremely low. This is also the opinion of the OFT.OFT

The OFT was writing in 2014, when auto-enrolment was impacting larger employers with in-house pension expertise or a budget to access external advice.

Today there is generally no pension expertise among employers staging and only a minimal budget to understand what makes for a suitable workplace pension.


What of tomorrow?

I am confident that the vast majority of workplace pensions in place today are fit for purpose and are suitable for the needs of most employers. There are a few bad apples which surface from time to time (myworkplacepension being the latest). I do not expect any of the large workplace pensions to go belly up, but I do expect there will be grievances from classes of employees who feel they were offered the wrong scheme.

  1. Employees on low earnings saving into schemes from which they can get on government incentive (tax relief)
  2. Employees who are denied an investment option that meets their religious or moral make-up.
  3. Employees who are invested in a workplace pension which (for whatever reason) deteriorates in quality and falls behind others.

When all you can judge a workplace pension on is it’s promise for the future, then there are few immediate differentiators (net pay v RAS and  investment options are examples).

But if we develop a comprehensive and consistent value for money scoring system that allows ordinary people to compare the progress of their investment in one workplace pension against another, then people will become much more interested in why an employer chose one pension over another.


Creating a way to compare pensions,

I write a lot about IGCs and Trustee Chairs and the important role they have in assessing their workplace pensions for value for money. So far they have failed to come up with a coherent measure to benchmark each scheme against another.

I am keen to create such a measure and to publicise how each workplace pension is performing against it. This is how I wish to develop the work we have already done on scheme selection ( http://www.pensionplaypen.com) .

But creating a transparent performance comparator will be controversial. For it will need to show performance, explain performance and explain what is holding performance back. One thing we know from the research done by the IGCs over the past 12 months is that people will judge their workplace pensions by outcomes.

The IGCs and other fiduciaries of workplace pensions need to publish and explain outcomes as soon as possible.

Employers should become very interested in these value for money scores and the components that go into them. They will determine whether they backed a title contender of a relegation struggler.

Employees should get interested too (as they are in countries with mature compulsory saving systems). Australia and America both have intense interest by all parties to Super and 401k plans.


The state of today

We know that when we – as employers- choose a workplace pension for our staff, we are doing so on their behalf.

When I asked a group of 170 employers at Sage Summit earlier this month, whether they felt they had a duty to choose a suitable pension, every one put up their hand, not one said it was not their business.

And yet the vast majority of decisions being taken today, are being taken blind. The Pensions Regulator’s choose a pension pages do not even demand that the reason for the choice is documented. The majority of employers who I spoke to after the Sage event admitted to not feeling confident why they made the choice they did. Only two I spoke to had documented why they’d chosen as they had (and they’d had to because they’d used Pension PlayPen!).

The truth is that most employers are buying blind, having no clue as to why they are buying one pension over another and they have anxiety that they are not exercising any duty of care- or good faith – at all!


 

Meeting the Minister

I have two objectives when meeting Richard Harrington;

The first is to impress upon him the bind that auto-enrolment is putting on employers with regards the selection of the workplace pension.

The second is to inform and engage him in the importance of transparent information that allows employers and members to compare the value for money of one workplace pension against another.

The two matters are inter-related; the first is a matter for the Pensions Regulator, the second for the FCA. In as much as the Pensions Minister’s remit is to make the auto-enrolment project work, it is critical that both regulators work together. My hope is that I can help pull regulation together to improve engagement both from employers and those who work for them.

If you have any comments on this , or matters that you think I should be bringing to the Pension Minister’s attention, drop me a line at henry.tapper@pensionplaypen.com or add a comment below.

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A pensions dashboard brings its own risk.


A need for pension

I am keen not to pour cold water on the pensions dashboard, but I am not having it promoted as the game-changer to savings behaviour. The pensions dashboard is what Martin Clarke, the Government Actuary, refers to as ” a mechanism to deliver policy objectives” in his recent blog on adjusting the state pension age.

It is clear to me that most people still consider the state retirement age as the point when “we are allowed to retire”. The reports of both GAD and John Cridland link the state retirement age not to when we’d like to retire but when the nation can afford us to retire – and subsidise retirement with state paid income.

The most important numbers to be delivered through the pension dashboard will not be from the private sector but from the DWP, indicating our state pension entitlements – what and when.

From what I have seen of prototypes, these numbers will continue to be delivered as income and not as a capital sum. There is no plan to offer a CETV on the state pension. People may be interested to fantasise about their state pension’s replacement cost but this has no more value than accelerating all our earnings since we started work and boasting that our lifetime income capitalised runs to £xm.

No matter how painful it is to ignore capital and think of lifetime income, we need to do the maths this way. We cannot allow the dashboard to become a placebo where a projected capital sum deludes us into a false sense of future prosperity. Retirement saving is a lot harder than 1% of band earnings, it’s a major endeavour, as important as going to work, paying the rent or mortgage and bringing up our families.


A need for enterprise

We have taken a decision, unlike many of our peer group of retirement saving nations, to make the dashboard a commercial enterprise that can be offered by any number of organisations as a means to promote their purposes. I agree with this, the state is not good at promoting itself as a pension provider, viewing our retirement savings holistically is a good idea and there is plenty of incentive to pension providers to promote their dashboards as a means of increasing pension flows their way.

Since we have three sponsors (the OECD pillars) in our pension system, let’s hope that these commercial dashboards will properly promote not just the state and the individual’s role, but the part played by employers in delivering pension outcomes. By commercialising the delivery of the dashboard, there is a good chance that employers can be brought to the party, their contribution recognised and their engagement with their employee’s pension encouraged.

Martin Clarke 4

However, in passing the dashboard to those promoting pension savings for commercial end, we need to be mindful of the risks this brings.

  1. There is a risk that by adopting uniform projections of private pensions, people are led to believe that outcomes are automatic. They are not, they depend on the quality of investment and the costs deducted.
  2. There is a further risk that providers will consider the dashboard an excuse not to invest in product but to focus purely on marketing their ease of saving
  3. There is a regulatory risk that the Government will take their focus away from the value for money agenda, wowed by the wonders of Fintech.

As regards the difference in outcomes from investment and costs, the dashboard needs to be developed in conjunction with reporting on how providers are actually doing. We need league tables that tell us accurately how each provider’s default investment option has performed, the risk taken to get that performance and the slippage from gross to net performance that indicates the cost of investment. We need , in short a “value for money” score, independently calculated with the stamp of the regulators upon it.

When it comes to product, we need the IGCs and trustee chairs to step up and provide dispassionate evaluation of the progress of each provider in delivering value and reducing costs. Providers must understand that the IGCs and trustees are their consciences and not an extension of their marketing arms.

When it comes to Government, we need as much attention paid by the Treasury team, lining up at Fintech conferences, to good governance as sexy promotion. It is only too easy for the Treasury to continue to bag short-term acclaim at the expense of what happens in decades to come.


And a need for circumspection

There is a lot of good coming out of the dashboard. It will make for cleaner data, it will push pension providers forward to embrace the Fintech dividend of higher individual engagement and it should lead to aggregation of savings into better product.

But we need to be circumspect and not allow the noise of the Digital Garage, to disguise the serious task ahead of us in turning Britain from a savings laggard to an example of a balanced society with a sustainable retirement savings culture.


Further reading –

Government report on last week’s tech sprint; https://www.gov.uk/government/news/winners-of-pensions-dashboard-techsprint-revealed-as-fintech-week-2017-draws-to-a-close

Daily Mail article showing examples of pensions dashboards; http://www.thisismoney.co.uk/money/pensions/article-4364904/Pension-dashboard-showing-savings-2019.html

Martin Clarke’s blog about pension adequacy and the state pension age; https://www.gov.uk/government/publications/periodic-review-of-rules-about-state-pension-age

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Fidelity – a cold fish of an IGC report.


Fidelity

Reading the Fidelity IGC report, I struggled to find the missing ingredient that would make me want to read the next one.  Reading it again, I think it may be “passion”. The report is stunningly correct, Fidelity is the only IGC to have a female chair (Kim Nash) and its sixties style cartoon characters who appear in the margin display all the right characteristics. The report is laid out so every base is covered and it is impeccable in its syntax, tone and construction.

Yet, like Fidelity itself, the report is a little distant. Fidelity is a massive world-wide fund management group that has a UK workplace division almost by accident. It has only ever considered large employers to distribute its services so Fidelity’s involvement in the auto-enrolment project has been limited. The large employers who offer Fidelity pensions to their staff also employ consultants to provide independent governance, so for Fidelity, the need for an independent governance committee may seem limited.

The distance noted above is evident in the banality of the report’s conversation with its audience

“Many policyholders of workplace pension plans are invested in default arrangements”

is offered as a key observation (well it’s in very large font!). You wonder who Fidelity’s IGC thinks its audience is and why they are reading this.

Certainly we see little of the too-ing and fro-ing between provider and IGC that characterises other reports. This may explain why the IGC seems a little distant and passionless. As an example, the report calls for Fidelity to review the letters it sends to its policyholders when calling for action. The IGC’s call for the letters to be “timely and pertinent” – words that subvert the aim of increasing engagement.

I originally wrote “ratiocination” rather than too-ing and fro-ing and changed the words so as not to get in the way of a good idea, “timely and pertinent” is just the kind of phrase the IGCs should be discouraging (for the same reason).

The “Fidelity knows best” tone of the provider is ever present “Fidelity carries out post implementation reviews to ensure policyholders are experiencing the best possible outcomes ” is an example. I am sure that Fidelity do have strong controls in place but administrative controls are primarily a protection against expensive restitution programs impacting the provider and employer. The member outcomes of a Fidelity workplace pension are experienced in later life (not post implementation).

This all may sound picky, but it is hard to get under this report’s skin and find out what is really going on. The respectability of the report makes it part of the corporate façade, almost indistinguishable from the internal governance literature that Fidelity turns out.


Where the report engages.

Unlike Zurich’s IGC report that stopped short of identifying the hidden costs of investment, the Fidelity report has a first stab at transaction costs.

fidelity2It’s not very clear why costs fall away towards the end of a member’s accumulation but at least here is an acknowledgement that these costs can be measured; there is a warning that the costs that come out of the FCA’s final calculation formula may be different and Fidelity’s IGC (wisely) accepts that they cannot give a value for money score until they have the full facts on the money. I thought this part of the report worked  well.

I was less impressed by the massive table that dominates the centre of the report, which simply states the matters reviewed by the IGC over the past twelve months. It would have been good to have some information on the quality of Fidelity’s approach to each of the matters. The table seemed to be more about ensuring that the IGC were seen to have been diligent than helpful to the policyholder.

I have no way of telling whether the Fidelity IGC have been effective or not and can only give a neutral score to commend the comprehensive agenda and the lack of qualitative reporting). As an effective report I give this an amber.

For its tone, I am giving it an amber. Controlled as it is , it is very correct, but I would like to hear the true voice of the IGC – and never do – this is a passionless cold but respectable report and I give it an amber.

As regards value for money, Fidelity’s IGC signed up to the wild-goose chase with NMG and got the predictable response that members wanted good outcomes. Fidelity (knowing best) interprets this as getting members to pay greater contributions; this is a mathematically correct observation and the IGC buys into the new normal that the best thing a provider can do is to make it easy for members to save more.

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But we are left with a bleak solution

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The happy bunch above are much more likely to engage where they can interact rather than be talked at, Fidelity’s controlled messaging seems a million miles from how ordinary people use technology to get up to speed.

So the Fidelity value for money research leads us back to precisely the same solution as Fidelity has been pushing to its members for two decades.fidelity5

There is no mention in the report in getting members interested in the investments within their workplace pension through publication of its Environmental , Social and Governance policy.

In short, the IGC is keen to talk to talk , but does not walk the walk. It really doesn’t show more than a passing interest in improving member’s value for money. While I cannot fault it for its positioning , I can only give the report an amber for its work on VFM.

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Slow and steady – the Zurich IGC


zurich

Laurie Edmans, Zurich’s IGC chair is a laid-back man. It shows in the IGC report that is considered and unhurried. It is a very good read as a deliberation on value for money though it is rather short on action – which for policyholders like me – is something of a let-down!

Zurich’s IGC is contrarian. To it and Zurich’s credit, it is made up only of independents with no Zurich staff on the committee. It was also unusual last year in going it alone to find out what people wanted from their workplace pension and how they’d consider value for money. It would seem that though Zurich did not participate in the NMG survey, their work reached similar conclusions

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From the 2017 Zurich IGC


What can Zurich do?

It is clear that Zurich can do considerably more to influence the outcomes on money they receive than determine the contributions themselves. Having been head of sales at Zurich, I know how keen Zurich are to see higher contributions per member – it is a key commercial metric. It aligns with what is in the long-term interests of policyholders  (despite conflicts with short term debt/housing).

However Zurich can do little to influence the contribution rates to their workplace pensions from employers and employees, this is the gift of employers, employees and to a degree advisers. The report admits this.

By comparison, there is a great deal Zurich can do to improve outcomes of their policyholder. This includes reducing legacy costs with a minimum of 1% exit fees for those over 55. As a legacy policyholder (over 55), I’m not impressed that Zurich’s conversation with the Regulator about reducing these exit penalties is “still open”.

More importantly for those actively saving into new workplace pensions are whether the Zurich investment options are providing value for money. We have no way of knowing this as the IGC has not even been able to get the data necessary to publish transaction charges. In a very sinister statement Edmans writeszurich4

Clearly a number of managers are not coming quietly, the journey to a transparent world will be a long one. It is a shame that Zurich ran out of time to publish the findings of Zurich’s first report – especially as we are now two years in!


Better late than never?

Zurich’s IGC also received the final report from their market researchers too late to apply it to the five principles that it had come with go determine value for money. I agree that the principles are split between hygiene factors (compliance and customer service levels) and “value attributes” . Hygiene factors form (for Zurich) the platform on which value attributes are judged and without them , any idea of value is a nonsense.

I am impressed by the IGCs principle that value for money should not just be considered in isolation but should be benchmarked against other workplace pensions. This is progressive, radical thinking. For all its dilatoriness, this report gets down to some serious thinking.

This is slow and steady stuff, a little too slow and steady for me, but at least it is coherent and consistent. The tone of the report is serious, there is no attempt here to big-up Zurich and though the relationship with the company seems harmonious, the IGC is clearly keeping itself at arms length. I like the tone of the report and give it a green.

I am not too sure that this is an effective report. Everything seems about to happen, As far as I can make out, some of the stuff that hasn’t happened, is now in breach of the new exit penalties rules. While there is some tough talking in the Report, there is not a lot of action. Sadly I have to call this report ineffective and will give it a red.

Finally, the work done on value money is good work. The money and time spent on consumer research has given the IGC the five principles and a basis for assessing vFM.

The degree to which Zurich can be held responsible for the “light-bulb moment” that will illuminate to ordinary people the need to change their (saving) ways – is debatable.

The degree to which Zurich can manage “value attributes” is easier to judge. Let’s hope that the final formula that the IGC arrives at, weights what can be measured rather higher than what can’t.

I think that Zurich IGC’s have taken not just their own understanding, but our general understanding a little further. The split between hygiene factors and value attributes is sensible and the emphasis on benchmarking disruptive. The narrowing down of value to the two essentials of return and engagement, may be something of a breakthrough.

I am happy to give the IGC’s work on vFM a green, even if we are light of any evidence that Zurich is supplying it!


You can find the Zurich IGC report here; https://www.zurich.co.uk/en/about-us/independent-governance-committee

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The Zurich IGC

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A time to be angry


royal mail

This makes me angry

 

I got angry yesterday…

I was on a conference call with a couple of lawyers arguing about the technical difference between a “duty of care” and the need to “act in good faith”. Apparently the semantics let an employer off the hook for the outcomes of its workplace pension!

When I asked a group of 150 employers in a room at Sage Summit whether they felt they had a duty of care towards their staff 150 put up their hands to say “yes”.

I’m angry that employers are being plied with the “all pension schemes are the same” – “no one can be blamed for choosing NEST” and “you shouldn’t get involved” arguments.

If you believe your staff are your greatest asset, you care about how they are paid and how they save.

I was in the room with the most pacific colleague! That person in the room with me got angry with the casuistry – righteous anger is  infectious!


Postal workers are angry

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The 140,000 postal workers are angry too. They were told when the Government privatised their company 7 years ago they would remain in a defined benefit pension scheme. Money was put in that scheme to make it viable, seven years later that scheme is being closed because to keep it open would cost over 50% of payroll.

Nobody wants 50% of pay to go into a pension, we’ve got to pay today’s bills too and if I were a postie, I wouldn’t be argued that this pension scheme should stay open. But I’d be seriously angry that it has gone from fully funded to unfundable in such a short time! We all know the reasons, the trustees thought slamming funds into bonds was a risk free strategy, they were wrong, look at the share price in the past six months.Royal Mai7

No one wins from this; the decision of the trustees to secure existing pensions has been a disaster not just for City investors but for the share options of Royal Mail staff, the job prospects of Royal Mail staff and for the postal service we rely on.

The posties should be angry, very angry.


In place of strife

The solution that the Royal Mail has come up with is clearly not pacifying the postal workers.

Nor will the advice of John Ralfe;

“Closing the DB scheme was inevitable to reduce RM’s costs and risk. Rather than trying to stop it, the CWU should be negotiating a more generous DC replacement”

Had the Royal Mail adopted a typical bond/equity mix rather than the slam-dunk into bonds, it would not have been inevitable that the scheme would have become unfundable for future accrual. But put the past aside, the old scheme is closed, good riddance to its niggardly strategies.

But DC is not the only option open to the Royal Mail, the FT reports (alongside John’s advice) that the Royal Mail has proposed

 “a less generous, but commonplace, defined contribution scheme in which workers take responsibility for investing and drawing income from their retirement fund”

but the Communication Workers Union (CWU) have put forward a compromise proposal

Royal Mail considers union’s pitch for ‘new kind’ of pension plan

CWU says its proposal would strike a fairer balance over sharing some financial risks

The CWU proposal would keep the current (not the increased) funding level of the DB plan, making the new plan DC for funding purposes. It would float the benefits so that – in future, things like the level of indexation of pensions weren’t guaranteed.

So it’s good to see the Royal Mail tell the FT

“We continue to work closely with our unions on a sustainable and affordable solution for the provision of future pension benefits.”


It ain’t necessarily so

We’ve got used to being told by experts that we must sit back and accept the lowest common denominator.

But the Gershwins wrote “it ain’t necessarily so” in the aftermath of the great recession to counter the heterodoxy that people should take it lying down!

Here is the cut verse of the song, that I sing to myself when I’m told that shit happens,

Way back in 5000 B.C.
Ole Adam an’ Eve had to flee
Sure, dey did dat deed in
De Garden of Eden
But why chasterize you an’ me?

Employers should have a duty of care to their staff (no matter what the lawyers say!)

The Royal Mail should negotiate for a more certain solution (no matter what John Ralfe says)

The DWP/tPR should pursue Philip Green/Rutland Partners and all the other shitesters who want to make money restructuring pension obligations into the PPF.

I could (and won’t) go on.

It ain’t necessarily so, but you won’t hear anyone singing that song – that’s because the voices of the 140,000 postal workers and their union are marginalised as “disruptive”.

It seems ok to be disruptive if you are a trendy Fintech, but not so if you’re fighting for your employment and pension rights.

As my friend Hilary Salt points out;

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The 140,000 postal workers should be very angry with those who argue DC is the only option.

It ain’t necessarily so – and it’s time that they and  their union – got a little more airtime!


Read more (and get an FT sub!)

Read about the DB closure and the strike threat here; https://www.ft.com/content/936f47e0-201c-11e7-a454-ab04428977f9

Read about the CWU alternative proposal here; https://www.ft.com/content/465fcda4-05bd-11e7-aa5b-6bb07f5c8e12

Read the latest news on Private Equity pre-packing pension rights into the PPF here; https://www.ft.com/content/f9126af2-2051-11e7-a454-ab04428977f9

Get angry!

 

 

 

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Ombudsman 1 – Freedom 0


pensions ombudsman

It would seem that Mr T (neither of the A-team or of this blog) has been sent packing by the Pensions Ombudsman.

Mr T sued Standard Life’s staff pension trustees to max-up his CETV. He did so using an online portal which gave him sight of what his CETV might have been, had he applied for it on that day.

The Ombudsman’s view is that the quote you get is what you’re offered according to the scheme rules and you shouldn’t be driving yourself and everyone else mad pointing out that the CETV would have been higher every time the valuation discount rate changed.

Let’s hope that that sets a few  ground- rules.

  1. On-line portals to CETVs are not a good idea; the ABI have mentioned that the pensions dashboard might offer on-line CETVs that go up and down like the bishop’s knickers. This is a terrible idea and would lead to chaos.
  2. Defined Benefit schemes are not unit-linked insurance policies, you cannot have a daily price, no matter how much you’d like to.
  3. Pension Freedom is folly if it supposes that you can turn pension to cash with any accuracy.

Mr T is a chancer and he’s been told to push off; but he’s a smart chancer, playing the insurer at its own game.  Standard Life will be major beneficiaries this year of the “dash for cash” promoted by Ros Altmann and the FT’s senior journalists.

I spoke to one CIO this week who is having to unpick the trustee’s investment strategy to create the extra liquidity needed to pay the anticipated transfers, we are talking here of billion pound adjustments.

I hear reports that FRS 102 accounts in 2017 are starting to show an adjustment for anticipated transfer values which will show an immediate windfall to the balance sheet. (CETVs pay out benefits on a best-estimate rather than a risk-free discount rate).

In short, Mr T is only doing what everyone else is doing; legitimate financial looting. The CIO sees the cost in terms of transaction costs, but if you’re a CFO valuing your scheme at the risk-free rate, you rather like Mr T.

Even at the highest possible CETV, Mr T is still taking out of the scheme less than the cost you’ve put on his staying in it!


 

The Standard Life pension trustees will breathe a sigh of relief. Had Mr T won, they could have been on the hook for unlimited CETV quotes , capturing every adjustment to the scheme discount rate. At £500 a pop (First Actuarial estimate), CETV quotes don’t come cheap and they form part of scheme expenses. The cost of the extra administration and the additional cost of paying out the highest ever CETV puts strain on the scheme funding and reduces other member’s benefits. The trustees will be thanking the Ombudsman.

Standard Life won’t be so pleased. The cost of paying out highest ever CETVs to Mr T would have  been lower than Mr T’s liabilities in the company’s accounts. Worse, the constituency of transferors that might have signed up to Standard Life personal pensions will be diminished.

But let’s be clear about this; the promise made to Mr T when he joined Standard Life was for a defined benefit pension, the property rights to a CETV were never the main event. Standard Life have complied with their disclosures and according to the Pension Ombudsman

There is no evidence to support that he has been financially disadvantaged as a result of the alleged maladministration

The message to pension schemes is clear. On line valuations of CETVs may sound good but they can create confusion and frustration for members and have the potential for all kinds of legal battles when the variations in CETVs become clear. Trustees should resist any attempt to twist their arms to provide such things as part of the pension dashboard project.

The message to members is clear, your CETV is a function of discount rates that you cannot control or second-guess. There is an element of discount-rate lottery in taking a CETV but that is in the system and the system cannot be gamed.

The message to employers is that DB schemes are not open-doors to pension freedoms and that much as employers would like to kiss goodbye to pension liabilities, the interests of remaining pensioners are not suited by Mr T’s games. In the long-term, over-payment of CETVs and the administrative chaos of unfettered CETVs is not good for you as a business.

The message to Government is that, no matter how much you may want everything on your pension dashboard to be as simple as a Cash Isa, pensions are different. If we follow further down the road of the cash equivalent pension, how long till we pay the State Pension as a taxed lump sum?

Mr T


There is an excellent report of the judgement here ;

https://www.moneymarketing.co.uk/standard-life-employee-loses-complaint-pension-transfer-value/?cmpid=MME11_3296606&utm_medium=email&utm_source=newsletter&utm_campaign=mm_daily_briefing

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