IGC reporting fails to identify value for money

Aviva and Legal & General topped campaign group ShareAction’s index of IGCs. BlackRock and Old Mutual Wealth scored lowest, with just six points each out of a possible 19.

IGCs were established after an 2013 Office of Fair Trading investigation labelled the defined contribution buy side “one of the weakest that [it had] analysed in recent years”.

Some IGCs are making wonderful progress, and it’s clear from the report that others are lagging behind

Andy Agathangelou, Transparency Task Force

The majority of IGCs scored fewer than 10 points in the index. ShareAction said the findings were a wake-up call for the Financial Conduct Authority, which abandoned its own review of the committees’ performance indefinitely last year.

The scores were allocated based on IGCs’ efforts at assessing and reporting value for money, explaining investment strategy and performance, and stating management charges and investment costs.

Scrutiny of member communications and engagement, service and administration, and long-term factors including environmental, social and governance factors was also taken into account.

Room for improvement

Rachel Haworth, senior policy officer at ShareAction and author of the report, said: “There isn’t enough transparency to be clear whether IGCs are fulfilling their role.”

The report found that many of the assessments provided by the IGCs were too vague, or made unsubstantiated claims.

Several committees also failed to disclose adequate amounts of data on the charges incurred by members. Haworth added she would have liked to see some take more critical stances on high non auto-enrolment charges.

A spokesperson for Old Mutual Wealth, criticised for not setting out its criteria on value for money, responded: “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.”

A spokesperson for the FCA said IGCs were overall acting in accordance with their terms of reference, and that the watchdog is carrying out several projects involving IGCs.

"For example, we recently published a Discussion Paper on non-workplace pensions highlighting the role that IGCs play in workplace pension schemes, and asking for views on whether independent governance could play a role in delivering fair outcomes for non-workplace customers," the spokespeerson added. "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.”

Employers need cost data

Whatever the quality of disclosure of a provider, individual members are unlikely to be able to take action because employers pick providers.

Good IGC reporting is therefore as much about informing employers as members, said Andy Agathangelou, founding chair of the Transparency Task Force.

“The more clear, intelligible evidence-based information there is available, the more readily the employer can make decisions,” he said, arguing that currently decisions are heavily influenced by less rational factors, such as consultant relationships with providers.

Still, he said, the massive bearing costs and charges have on an individual’s retirement outcome mean this information should be presented in a clear, comparable way to members.

“Some [IGCs] are making wonderful progress, and it’s clear from the report that others are lagging behind,” he added.

Do members want the detail?

For many IGCs and trust-based schemes alike, the key question has been how much information to relay. Too much information might confuse less financially educated members, while overly simplistic summaries can frustrate the well-informed.

Some providers fell foul of ShareAction’s methodology for being overly simplistic in their annual report.

A spokesperson for BlackRock said: “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.”

So should schemes and IGCs try to keep things simple or give as much information as possible?

“The answer of course is both,” said Agathangelou. “You’ll have some people who for whatever reason really do want to understand that granular level of detail… at the other extreme the vast majority of pension scheme members won’t pay any attention to this at all.”

FCA intervention is needed

For information on costs and value for money to be useful to members, disclosures have to be comparable between providers, IGCs and trust-based schemes, said Paul Leandro, head of the north and Scotland team in Barnett Waddingham’s DC consulting practice.

He said IGCs were trying to provide a useful service to members, but that without an industry standard, this comparison was difficult to make.

“IGCs are still trying to define their role, and without having a very detailed guidance from the FCA, each IGC has taken an interpretation of what they need to do,” he said.