What to look for in the forthcoming IGC statements

IGCs produced very different reports in the first year. While common themes emerged – all provided comment on charges, investment performance and service standards – there were some significant variations.

The approach to product design and member engagement was very different. Some reports were technical in nature; others used more accessible language. Some were assertive in tone; others were more passive.

I expect 2017 reports to be able to take more account of members’ views and consider, alongside IGCs’ own professional judgments, what they find important

What is apparent is that views varied on whether the report should target members, employers or the FCA. I expect that more of this year’s IGC reports will be addressed to the member, as opposed to being aimed at the FCA.

However, the continued variation in approach goes to the very heart of the issue: the industry, in conjunction with the FCA, still needs to establish a view on the purpose of the report and its assessment.

A common framework

Unfortunately, the FCA has issued no real guidance on an IGC’s duty to assess and report on value for money beyond the standard IGC terms of reference.

The Pensions Regulator’s defined contribution code of practice and supporting how-to guide on ‘Value for members’ offers more helpful direction by recognising a broader spectrum of ingredients, and is a useful look across to the trust-based landscape for IGCs, but this still only provides high-level commentary on the issues. 

It appears to be a deliberate policy by the FCA at this stage to allow IGCs to develop their own thinking. The result is that it is difficult for IGCs to gauge what the FCA will expect from them when it engages in its review of IGCs’ effectiveness later this year.

And despite the huge amount of work undertaken by IGCs in assessing value during 2016, achieving a common framework – for example around default fund performance, transaction costs or service provision – remains practically impossible in the short term.  

As such, we are likely to continue to see a variety of approaches in the 2017 reports when it comes to understanding and assessing specific components of value.  

Once the results of the FCA review of IGC effectiveness are known and further progress has been made in relation to transaction costs, the industry is likely to move, ideally in conjunction with the FCA, towards a common framework for assessment, while allowing enough flexibility to cater for the varying components of each provider’s own offering.

IGC collaboration

It became clear during 2016 that successful member engagement was critical to discharging IGC duties.

However, given the general apathy towards pensions from the public, it has proven difficult to get detailed views from members directly. To address this, 11 IGCs, with the support of their providers, collaborated in an extensive research programme to understand what members perceive as important when it comes to pensions. 

I expect 2017 reports to be able to take more account of members’ views and consider, alongside IGCs’ own professional judgments, what they find important – whether it be investment performance, accessing DC flexibilities, choice of fund range, efficient charging structures or effective communications. 

Much of the work in assessing value for money to date has been focused on individual provider offerings.

There is a general willingness among many IGCs to build on the collaborative work undertaken in relation to understanding member views and to carry out a comparison or benchmarking exercise that looks beyond their own products.

While you are unlikely to see many references to this in the 2017 reports, conducting collective benchmarking analysis to meaningfully improve member value is likely to be one of the key challenges for IGCs to overcome in year three and beyond.

Jacqui Reid is associate director at law firm Sackers