Admin oversight at Aviva delays new default at General Medical Council

Board minutes reveal a string of apologies from the platform provider for delays, which occurred due to problems with terms and conditions and the need to contact members.

It can be very difficult to calculate the exact investments that each member should have and to implement this (especially if members have been given the option to opt out of the change, which is common practice)

John Reeve, Cosan Consulting

The GMC's original decision to change default was a result of pension freedoms throwing into question the suitability of its previous offering, designed on the assumption that members would use at least three quarters of their pension money to purchase an annuity.

Alongside the new default investment option, two lifestyle options suited to annuity purchase and cash were also approved.

Aviva apologises for tardiness

According to the pension plan management board’s December 2018 report, “it was originally intended that the new [default investment offering] would be implemented from 30 November 2017”.

“However, Aviva later notified the Board that they had not taken into account that the proposed change to the new DIO required a change to terms and conditions and had therefore delayed the implementation,” the document states.

At a board meeting in July 2018, a senior Aviva representative “attended to apologise for the continued delay in implementation of the DIO and two other issues that had arisen in the administration of the pension plan funds”.

The board was told that the switch to the new default investment option would take until early 2019 to implement, because Aviva is required to carry out due diligence and send a letter to each member before changing terms and conditions, which requires a 90-day notice period.

At another board meeting on 10 October 2018, the board again heard from the Aviva representative that the matter was still being discussed within Aviva at executive level.

The board was told that the earliest date a transfer of funds could take place was late February 2019, and agreed to begin  the formal consultation of members.

Following the 10 October meeting, Aviva offered to uplift pots by the amount returned by whichever strategy returned the most, for any continuous member of the plan since 30 November 2017 who chose to move to the new default strategy by 3 December 2018.

New default now in place

The new default investment option was finally put into effect in April this year, but over a year after the initial intended November 2017 date.

A spokesperson for the GMC plan says: “We have completed the implementation process in line with the requirements that our advisers set out and this has been completed satisfactorily. The consultation formed part of Aviva’s requirements.”

An Aviva spokesperson says: “We work closely with employers and their advisers to deliver the workplace pension scheme that best suits their organisation. Where any issues arise, we resolve them as quickly as possible while keeping the client informed of what is happening and ensuring members are not disadvantaged in any way.”

John Reeve, a director at Cosan Consulting, says that when default strategies are changed, it is important to keep members informed. "This often delays the process while appropriate communication material is drafted," he says

Delays also depend on what type of default strategy is planned, as well as what is being replaced, according to Mr Reeve.

He adds: “If either are lifestyle or target date funds with dynamic switching, it can be very difficult to calculate the exact investments that each member should have and to implement this (especially if members have been given the option to opt out of the change, which is common practice)”.

GMC responds to demand for ethical fund

The GMC plan's board has also decided to introduce an ethical investment fund, due to member demand. Twenty-five employees attended seminars on the topic in June and July last year, leading consultant Aon to work with Aviva to design an investment option reflecting member preferences.

At the October 2018 meeting, the board heard that "Aviva might introduce an additional charge of 0.15 per cent to 0.25 per cent... as such funds were currently loss making for Aviva”. Aon told the board that even with this charge on top of the 0.33 per cent standard charge for the plan, the option would be competitive.

For the vast majority of DC schemes, members views are only going to be relevant in terms of the range of self-select funds to offer

Ralph McClelland, Sackers

However, the GMC plan spokesperson has told Pensions Expert that there will not be an additional charge.

The fund “is very close to being implemented - we expect it to be available in the next few weeks”, the spokesperson says.

The ethical flexible retirement fund currently uses the Liontrust Sustainable Future Corporate Bond Fund, the Liontrust Sustainable Future Global Growth Fund and the Aviva Blackrock Aquila Over 5yrs Index linked Gilt Tracker.

Members want more say 

The boom of ESG investing has been largely due to the assumption, both in the investment industry and in regulation, that members' primary concern is maximising investment return. However, recent research questions whether this is in fact true.

Invesco found that the term “ESG” is unpopular and unfamiliar to pension plan members, with those polled by the asset manager preferring “responsible” or “ethical” investment.

“With the growth in DC funds where members have more transparency and more say on where money is invested, and with more focus (especially from the young) on what the money is used for, we are seeing increased demand for ethically invested funds,” Mr Reeve says.

He says more and more members want to know that their money is doing good, or at least not doing anything bad, even if this sacrifices returns.

However, defining a “good” ethical fund and measures of success is very difficult, according to Mr Reeve. “Whilst members will commonly just have the option of a single ‘ethical fund’, trustees have a duty to try to make sure that it is an ‘appropriate’ fund. This is difficult to do and even harder to communicate,” he adds.

Tendency to conflate ‘ethical’ with ESG continues

Last year, the Department for Work and Pensions binned plans to require trustees to outline how they have taken members’ ethical views into account in their investment strategies.

Ralph McClelland, a partner at law firm Sackers, says that “for the vast majority of DC schemes, members' views are only going to be relevant in terms of the range of self-select funds to offer”.

He adds that there is still a tendency to conflate ethical, non-financial factors with financial environmental, social and governance factors, particularly in the context of member surveys.

“If members are asked to respond to questions that are not entirely clear on the distinction between financial and non-financial matters, it is difficult for trustees to draw reliable conclusions from those surveys,” he notes.

Interpreting data from member surveys is not easy, even where questions have been carefully designed.

“To one trustee board a 40 per cent response rate expressing interest in ethical funds might be interpreted as a negative response (i.e. less than a majority), whereas others would see this as a significant proportion of the membership,” Mr McClelland notes.

Ethical funds might aim to avoid certain sectors, such as arms, gambling or tobacco. 

“At the risk of muddying the water, I think for some members environmental factors are also analysed as ethical factors, though clearly trustees usually deal with this as a financial factor,” he adds.