An analysis of IGC annual reports finds some lacking in information on value for money, costs and charges, and investment performance. James Phillips explores the findings
Since 2013, contract-based pension providers have needed independent governance committees (IGCs) to oversee their pension schemes, delivering an annual report to members covering a range of areas.
This was prompted after the Office of Fair Trading (OFT) found a lack of competition, poor governance, routine overcharging of savers, and consumer detriment.
In an effort to boost transparency and accountability, the Financial Conduct Authority (FCA) mandated IGCs to produce annual reports, stating it would review these last year. Yet, last year, the watchdog decided to indefinitely delay this.
Now, a ShareAction report - Who watches the watchers? Transparency and accountability in workplace personal pensions - has taken on the remit, ranking IGCs' annual reports.
Its senior policy officer Rachel Haworth explains: "We wanted to look at how transparent and effective the IGCs' reports were, because that was a really important part of ensuring that consumer interest is protected and the governance gap is being addressed, which the IGCs were originally set up to do."
The paper rates 16 IGCs out of a total core score of 19, based on their 2017 statements, with bonus points given for innovation. It factors in reporting issues of value for money, investment strategy and performance, management charges and investment costs, member communications and engagement, member service and administration, and long-term factors including environmental, social and governance (ESG).
It is a wholly qualitative analysis, considering the depth and comprehensiveness of reporting, ascribing one point for a ‘limited account', two for a ‘general account', and three for a ‘comprehensive account'.
For example, a ‘comprehensive account' of value for money would include a clear framework defining the concept, a clear set of criteria for assessing against, and a detailed assessment then undertaken and shown with a ratings system.
Haworth explains the aim is to understand how well the OFT and FCA's concerns about buy-side value and competition are being addressed.
"The point of these reports is to increase transparency and comparability between providers, so that you'd be able to get a sense of whether a consumer with one provider was getting value for money in relation to another," she says.
"Nearly a third of IGCs aren't reporting on what consumers are being charged by the provider of those services, so it's impossible to know whether it is now fair and competitive. There isn't really any evidence that IGCs are strengthening the buy side and addressing these problems properly and for the long-term, driving competition and getting the best value for customers."
The report is not designed solely to criticise, recognising that poor reporting may not represent the underlying performance of the IGC members. Instead it is to inform both IGCs and policy-makers on how challenges can be tackled and whether rules are meeting their objectives.
Indeed, ShareAction recognises good practice, noting Legal & General IGC's holding of annual general meetings (AGMs) for members and Aviva IGC's commissioning of a member survey.
At the top of the table is Aviva's IGC, awarded 15 core points and one bonus point, closely followed by Legal & General and Standard Life with 14 core points and one bonus point each.
Yet, while Aviva scored well in many areas, it did slip on its reporting of member service and administration, and was middling for reporting on long-term investment factors, and investment charges and costs.
Meanwhile, in joint last place with six points apiece, Old Mutual Wealth and BlackRock's IGCs were found to be lacking in transparency.
BlackRock's IGC received the lowest points on all areas of analysis, aside from challenging the provider to take further action on value for money, and received no points for reporting on long-term investment factors.
Responding, a BlackRock spokesman says: "BlackRock's IGC annual report discloses all relevant information to scheme members and policyholders in a transparent and straightforward manner. Beyond the information detailed in the IGC's annual report, BlackRock continuously updates scheme members and policyholders about the service, performance and costs for their life savings on its website, which we would argue is a better benchmark for transparency than the methodology used by ShareAction.
"We welcome the efforts to promote transparency and accountability and have engaged with ShareAction on its methodology. Despite our engagement, ShareAction has chosen to solely focus on a single annual written communication in the report."
Similarly, Old Mutual Wealth's IGC was often found to give limited accounts, but received zero points for both member service and administration and reporting on long-term investment factors. It did, however, receive two points for reporting on investment strategy and performance.
An Old Mutual Wealth spokesperson says: "The role of the IGC is vitally important to ensure we deliver value for money for savers in workplace DB pensions. IGCs are in relatively early days and we welcome commentary on how the clarity and transparency of their reporting can be improved. We are reviewing the recommendations within the report."
To some extent, however, while the level of disclosure in the reports is not standardised, it will be difficult to compare between providers, not least because a lack of disclosure does not necessarily mean a poorly-performing IGC.
ShareAction lays some criticism at the FCA's door, arguing its failure to review these statements as planned means they are letting down around 12 and a half million savers in contract-based schemes.
But the FCA gets confidence from its own prior research. In a statement, a spokesperson said: "The FCA remains focused on ensuring customers are protected. Through work we have already undertaken, we found that overall IGCs are acting in accordance with their terms of reference, by influencing, supporting and advancing the significant reduction in costs and charges that have been achieved.
"We are currently carrying out a number of other pieces of work which impact IGCs. We are also currently considering what form of rule changes may be appropriate to address the Law Commission's 2017 proposals on pension funds and social investment."
Nevertheless, the report makes a number of recommendations, arguing that greater transparency and clarity can reduce a "general climate of distrust". It suggests IGCs produce both a detailed report and a shorter summary for members which should include tangible explanations of actions taken. Also, they should report on hiring practices, and improve board diversity.
Meanwhile, policymakers should adopt a transparency code for investment costs and charges, and require IGCs to report on EGS policies. Finally, providers should hold AGMs for members, including an accountability session, and also ensure contact details are readily available.
IGCs are still somewhat in development, yet while there are no strictly enforced reporting standards or regular FCA scrutiny, it may be sometime before they are directly comparable and transparent.
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