IGC reports are ‘vague’ and lacking information, says Labour MP

Firms that operate workplace personal pension schemes must establish and maintain IGCs. They have a duty to scrutinise the value for money of the provider’s workplace personal pension schemes, taking into account transaction costs, raising concerns and making recommendations to the provider’s board as appropriate.

In groundbreaking research last year, campaign group ShareAction found that despite examples of innovation by some IGCs, “many IGC reports are vague and offer only unsubstantiated claims that savers’ interests are being protected. In a number of cases, IGC reports provide insufficient information to enable savers to understand the value for money they are getting”.

Some IGCs, however, still seem to be experiencing difficulties in providing proper protection for consumer interests

Rachel Haworth, ShareAction

In a report of proceedings published last week, Labour MP Steve McCabe challenged the Financial Conduct Authority on their role in overseeing the committees.

McCabe quoted the ShareAction report, asking: “How did you get to a stage where you gave them a clean bill of health when this was happening and you were aware of it? Do you accept the ShareAction report?”

Pritheeva Rasaratnam, head of pensions and funds policy at the FCA, replied: “You are absolutely right – there were varying standards of reporting. One of the things they [ShareAction] recommended we do was issue further guidance on value for money, to help IGCs. In fact, that is one of the priority actions coming out of our joint strategy with [the Pensions Regulator].

“We are going to work with the Pensions Regulator to try to set out a bit more guidance about what value for money means and what we expect IGCs to do when they assess value for money.”

McCabe also asked if IGCs could “be more proactive and drive providers to take robust action earlier”, if the FCA had been successful in improving IGC quality, and whether the watchdog would issue guidance for them.

Christopher Woolard, executive director of strategy and competition at the FCA, responded: “We haven’t issued direct guidance to them, but we have had a number of conversations with IGCs.”

“They have had a meaningful impact in reducing the underlying cost of funds for many members. In that respect, there is a good job being done there,” he continued. “But the fact that we have got a review scheduled and the comments from ShareAction that we have discussed with them and, frankly, broadly accept, means this is an evolving picture.”

Commenting on the WPC inquiry, Rachel Haworth, UK policy manager at ShareAction, said: “It's great that, a year on from our investigation, we’re seeing MPs and the regulator taking the issue seriously.”

“We hope this will lead to improved outcomes for savers. Following our engagements with IGCs we’ve been pleased to see many useful changes being made. Some IGCs, however, still seem to be experiencing difficulties in providing proper protection for consumer interests. The FCA needs to provide further support and scrutiny to ensure savers get a good deal and it should consider how to do so as part of its forthcoming review of rules for IGCs.”

Chorus of criticism

Five out of 16 reports reviewed by ShareAction did not state how much savers are charged by their workplace pension provider. Seven out of 16 did not report data on how well savers’ investments were performing.

Henry Tapper, director of First Actuarial, has been an influential campaigner for more effective IGCs. On his blog, he has said: “People who are genuinely interested in transparency are not getting onto IGC boards. Instead IGCs are being packed with ‘trophy’ members who appeal to the vanity of the insurance boards, but who have neither the energy nor the motivation to genuinely shake the tree.

“IGCs have not yet established mechanisms to hear firsthand from either members or their employers. When it comes to the nuts and bolts of auto-enrolment and workplace pension saving, the IGCs therefore have to guess at the issues, or be guided by large employers – who have available resource to have individual meetings with the IGCs.

“In Britain today, we have more than 1m participating employers in auto-enrolment, but all but a handful are excluded from the IGCs’ knowledge and understanding.

Not all IGCs are poodles

One IGC that has proved its effectiveness is Virgin Money’s. Last year, its third report from Sir David Chapman for the Virgin Money Stakeholder said there was room for improvement on “costs, charges and benefits”.

“As pensions are a long-term investment, the impact of annual charges can be significant on the overall value of your fund. The provider’s 0.75 per cent AMC [annual management charge] for automatic enrolment and 1 per cent for others, while compliant, is high when compared with similar, passively managed schemes and this will have an impact on the value of policyholder funds,” he wrote.

Significantly, following Chapman’s report, in 2019 Virgin Money cut the fee on its UK tracker fund from 1 per cent to a still-high 0.6 per cent.