Value for money is an increasingly important metric by which DC pensions schemes will be judged, but what lessons can be learnt from the first IGC annual statements? Louise Farrand explores
Independent governance committees (IGCs) are contract-based schemes’ answer to trustee boards. Typically, they are staffed by professional trustees or people with a background in the pensions industry.
They have been tasked with assessing value for money in contract-based schemes, but what can their first annual statements teach trustees?
1) NEGOTIATING WITH A SCHEME SPONSOR ISN’T EASY FOR THE PROS, EITHER.
Paul Trickett, chairman of the Legal & General independent governance committee, writes in his first chair’s statement: “The IGC has not been without challenge in its first year. The requirement to implement an agreed plan with L&G in response to [the Office for Fair Trading’s 2013 market study on workplace pensions] was met in line with all regulatory deadlines but the IGC would have preferred this was achieved sooner.
“Progress improved towards the latter part of the year but the resulting delay has meant that our value for money assessment is not as advanced as we would have liked. We expect Legal & General to improve the speed of their responses in 2016.”
Richard Butcher, chief executive of PTL, who chairs and sits on a number of IGC and mastertrust boards, says: “We all know instinctively when we buy a product if we think we are getting a good price, but we can’t draw a hard line… The biggest challenge over the past 12 months for mastertrust trustees and IGCs has been to try to codify that sense of good value.”
2) EVERYONE WILL APPROACH VALUE FOR MEMBERS IN DIFFERENT WAYS.
“If you look at this first generation of IGC chair statements, no two are going to look the same because we’ve all come at it in different ways,” says Butcher. “There was a move to try to create a common framework but even within that we have all approached it in very different ways and reached subtly different conclusions.”
3) INTERROGATING VALUE FOR MONEY IS WORTHWHILE
L&G’s IGC has agreed a cap on annual management charges in cases where they would push charges above 1%. “This will be reduced to a level that, if members were invested in L&G’s current default option of the multi-asset fund, the total charge would be no more than 1% per year,” reads Paul Trickett’s statement as chair.
Standard Life’s IGC has similarly negotiated down charges where they were over 1% in a series of measures that will overall benefit 145,593 current scheme members, and 69,659 former members.