Thomsons Online Benefits Pension Provider Report 2018 Contents
Introduction 3
The future of financial wellness enhanced 4 by connectivity
A shrinking provider market 7
About this report 10
Mercer Workplace Savings 14
Aegon 16
Aviva 22
Legal & General 28
Royal London 33
Scottish Widows 36
Standard Life 43
Appendix 1: NMG – Broad market opinion 50 (adviser sentiment)
Appendix 2: High level statistics 50
Appendix 3: Thomsons Online Benefits service 52 statistics
Appendix 4: DarwinTM fund range 53
Appendix 5: Default fund performance 53
Appendix 6: Access to savings 54
Appendix 7: Quick comparison 54
2 | Pension Provider Report 2018 Introduction Neil Atkinson Head of Proposition
Welcome to the 2018 Pension Provider Report, our annual review of the UK group pension provider market.
Typically, workplace pension provision is the largest benefit spend for our clients. With this in mind, to ensure we deliver the best possible pension solution for our clients, we are constantly evaluating the market on your behalf.
This report is the culmination of our client provider review activity throughout the year and applies multiple objective data sources, coupled with our own operational experience, to provide you with the best quality summary of how providers stack up. Crucially, this report gives our readers an opportunity to understand our view on provider propositions, their service quality and approach to technology. In addition, we look into the rise of data analytics, the explosion of fintech companies offering financial wellness solutions and the opportunities that technology and partnerships present to deliver better financial outcomes for employers and their people.
Following our acquisition by Mercer in December 2016, it’s been a privilege to share and collaborate with the wider team at Mercer to increase the value we bring to our Thomsons consulting clients. As we look forward to summer and beyond, we’ll be building out our suite of products and services. This includes developments in the advised services space, deeper and more enhanced DarwinTM provider connectivity as well as building out Darwin enhancements, particularly with our Retirement Planner, where members can look forward to a consumer-grade member experience and a new-and-improved investment risk modeller. Furthermore, we are in talks with a host of new and exciting third party providers of financial wellness solutions to deliver an updated proposition, ensuring that we enable our clients to deliver the very best solutions for their people.
In the meantime, we hope you enjoy this year’s report! If you have any questions or feedback please get in touch with your usual Thomsons contact or email us at [email protected].
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Pension Provider Report 2018 | 3 The Future of Financial Wellness Enhanced by Connectivity Neil Atkinson Head of Proposition
Technology underpins everything we do at Thomsons. That’s why adopting our award- winning software Darwin is a prerequisite to taking our pension governance consulting services. This is because we believe, and indeed can prove, that higher employee engagement and pension contribution rates are achieved through delivering workplace pensions through technology.
If you’ve read our annual provider review before, you’ll know that the extent to which we can connect with pension providers to ensure an enhanced member experience impacts our overall assessment. It’s much the same with financial wellness. This section of the report aims to help you better understand the rapidly evolving financial wellness landscape; and hear how we’re engaging with the provider market to deliver great solutions to employees and help our clients boost their employee value proposition.
We believe scalable digital solutions, delivered through Darwin, will ultimately help people make better financial decisions. Aside from salary, the amount employers spend on workplace pensions is likely to be their single largest benefit cost. Whilst we proudly evangelise the benefits of saving into a workplace pension, we also recognise that employee needs vary hugely, even within generational segments.
More and more people are feeling more immediate financial stress as they aim to make ends meet month-to-month. This stress can also be put down to struggling to service expensive debt, not knowing how to save and reacting to the perceived complexities of their own financial situation with inaction. In today’s always-on society, it’s easy for people to put personal finances into the ‘do it later’ pile, rather than engaging with it and making positive decisions. In short, financial matters don’t really ‘come alive’ for most people.
However, the market is reacting with a clutch of emerging providers, mostly in the fintech space, seeking to engage users with simple products, engaging interfaces, transparent charging structures and lean operating models. These providers tend to be agile and their propositions focused on customers’ self-serving.
Big financial institutions are investing heavily and taking stakes in many of the emerging platforms such as Legal & General (L&G) and Salary Finance, Unum and Smarterly, Goldman Sachs and Neyber, and Aviva and Wealthify. Additionally, providers such as Aviva are taking this digital revolution very seriously in their own right, and bringing R&D in-house by setting up incubator-style entities staffed by industry outsiders and data scientists.
Emergent new providers are on the whole, product-focused. Entrepreneurial in spirit; fintechs see a niche or specific customer need and then build a product around it. Product-led solutions work up to a point, and deliver value to customers where demand exists, or where it’s created by nudges, engagement or communications.
There’s a role in the workplace for product hosting and provider introduction, but also just as much a role for engagement, education and promoting self-awareness to empower people to make better decisions. This is evidenced by point-solution providers expanding into financial education in order to round out their propositions. However, these bolt-on education modules are often seen as accompaniments to the main product and no matter how personalised, are premised on users seeking the information out, reading it and acting on it.
4 | Pension Provider Report 2018 Education and engagement is the mainstay of how employers communicate to their people; and rightly so. Comms can be targeted, personalised, branded appropriately and span different media. However, there’s a different way of looking at financial wellness which has quietly been gaining traction over the last 5 or so years; account aggregation.
Our own Employee Benefits Watch 2018 research highlights how Millennials want easier access to their benefits via SSO, integrating multiple provider platforms in a single place, interacting via apps on mobile devices, and using interactive tools.
Aggregation gives users this experience and adoption is poised to accelerate in the wake of the European Payment Service Directive (PSD2). For the sake of clarity, Open Banking is the UK version of PSD2. The difference is that whereas PSD2 requires banks to open up their data to third parties, Open Banking dictates that they do so in a standard format.
Open Banking allows people to be more in control of their own financial information. It stemmed from a UK government investigation which highlighted a lack of choice for consumers and a lack of competition on the part of banks. Nine UK banks and building societies are now required to make certain data accessible to other approved companies in a standardised, straightforward and secure way, following explicit consent from the consumer (although at the time of writing only four have released their API data). The process is underpinned by a set of security protocols to ensure the safety of this data. What this means in practice is an increasingly emergent set of fintech companies mining this rich vein of data for the benefit of consumers.
Account aggregators are important because they’re not focused on individual product needs, rather bringing together a customer’s entire financial position and net worth in one place. They allow a user’s own banking data to be served directly to them within the confines of an aggregator application, which is approved by the FCA if they’re using Open Banking. So think forensic line-by-line details of all banking transactions from multiple accounts. This can then split automatically into different spend areas and give user’s a detailed position of what they spend their money on. Within a workplace context, data on your workplace pension can be also be fed into these apps via standard API technology from the benefit platform or provider.
The ‘so what’ is that detailed spending habits can be used to help individuals plan better, save more, and highlight better financial decisions. The technology does the hard work and the user sees everything in one place.
A central aggregator solution like this is a good place to start for financial wellness as the model works on a subscription basis, so charging is transparent. Crucially, it is provider agnostic and its central tenet is a user’s own highly specific financial circumstances and not a provider imperative.
Are you wondering how a 10% pay rise will affect your financial life? Let the algorithm model it for you. Are you wondering if you can replace the 10-year-old car on the drive and keep saving at your current rate? Are you keen to cut down on monthly spending to save for a wedding and know what the impact might be in 5 years’ time? See how much you spend on your morning coffee or your broadband and get an idea of how much you could save. Or how about this: The app knows your postcode, knows how much your house is worth through Zoopla or Land Registry data, what your mortgage balance is and monthly re-payments are, and knows you can get a better deal by re-broking.
The existing product-led nature of many solutions will reach a glass ceiling in terms of uptake as they only address existing needs. Account aggregation will create demand through actual personalisation, where consumers hold power over their own data and are no longer restricted by large financial institutions using data advantage purely for
Pension Provider Report 2018 | 5 commercial benefit. This may in turn stimulate point-solution providers further once personalised needs are identified for saving, lending or protection.
Aggregation is here, and has been for some time. But it’s Open Banking, PSD2 and the normalisation of personal data being shared, underpinned by proper security protocols, which will really shake the market up.
These are some of the providers we are working with, or are currently in talks with, to provide our clients and their people with market-leading solutions through Darwin.
6 | Pension Provider Report 2018 A shrinking provider market Kevin Brendling Senior Pensions Technical Consultant, Thomsons Online Benefits
There is no doubt that the corporate pension provider market is shrinking; the important question is why, and what does this mean for our clients and members?
It will come as no surprise that this question cannot be answered by a single response. But, certainly some responsibility lies with the introduction of the charging cap. Controversial? Perhaps, but the mandatory decrease from the existing 1% stakeholder rules to 0.75% in 2015 was brought about largely by tabloid pressure, with pensions an easy target for generating headlines.
Whilst there were of course some schemes applying excessive charges, most contract-based schemes were already delivering low charges for members, due to the introduction of the stakeholder cap in 2001. However, the new cap ushered in a period of renewed competition and wafer-thin margins for providers, as it became necessary to undercut the cap to win business.
Despite all the talk about delivering value and not driving down to the lowest cost solution, the pressure for every scheme review to deliver a lower charge for members, is perhaps causing more harm than good. After all, what was wrong with a 1% charge? For those invested in a scheme default fund, that left 99% of the fund with no charge applied and while a drop of 25 basis points would deliver some limited improvement to member outcomes, it manifested a much more significant fall in income for providers administering the products. The knock-on effect has arguably led to compromises in other areas (e.g. default fund design).
Fast-forward a couple of years and we’ve lost the Friends Life and Zurich brands. More recently, Standard Life has felt the need to outsource its administration of workplace pensions to Phoenix. The danger now is that we end up with a smaller and less competitive market, with providers overstretching to win business and having to wait many years before they turn a profit - clearly this scenario presents some risks.
Phoenix itself is akin to a vacuum for failed pension providers and life companies. In recent years the closed book provider has bought AXA Wealth, Royal & Sun Alliance, Scottish Mutual and a host of other businesses.
Other key contributors to a shrinking market are the loss of annuity business (a direct side-effect of the introduction of pension freedoms) and the low interest rate environment that followed the 2008 financial crisis. Low interest rates, and more specifically quantitative easing, have led to lower yields on fixed interest assets. This has made it more difficult for the insurance industry (which predominantly invests in fixed interest assets – Fig 1) to cover its liabilities and annuity rates have also fallen as a result.
In recent years, nine annuity providers have pulled out of the market (or merged with others) and there now remains just six.1 The impact of these factors is a more challenging environment for insurance companies, which also tend to be pension providers.
1. https://corporate-adviser.com/annuity-market-shrinks-canada-life-buys-retirement-advantage/
Pension Provider Report 2018 | 7 It’s not clear whether these factors have driven insurers to change their business strategy away from insurance to more sustainable approaches, or whether this would have happened regardless - driven by technological change. However, it is clear that a transition is in place:
• Aviva, the UK’s largest insurer is heavily investing in technology to become a digital leader and it is successfully generating profit by hosting multiple products (and multi-buy discounts) on its platform.
• Scottish Widows’ purchase of Zurich's UK pensions and savings business gives it greater scale and better product diversification. This is part of a wider platform plan for Lloyds Banking Group and its customers.
• The merger between Standard Life and Aberdeen again delivers scale, but the deal with Phoenix allows it to offload a capital-intensive business, as it seeks to become one of the largest asset managers.
Whilst all three of these major pension providers are changing and adapting to market conditions in different ways, there is one primary goal – assets under management. All are looking to establish the best ways to attract and retain more, and the great accumulation tool is the platform. The end-game being a platform that delivers multiple financial products in one place. Essentially, providers are looking to create their own version of Darwin!
Figure 1: Asset allocation of UK insurers2
2. http://www.genre.com/knowledge/publications/iipc1611-en.html
8 | Pension Provider Report 2018 Figure 2: Reducing yields on long-dated gilts3
All are looking to establish the best ways to attract and retain more, and the great accumulation tool is the platform. The end-game being a platform that delivers multiple financial products in one place. Essentially, providers are looking to create their own version of Darwin!
3. Debt Management Office (DMO)
Pension Provider Report 2018 | 9 About this report Kevin Brendling Senior Pensions Technical Consultant
Before delving into the main body of the report, which contains our analysis of each provider on our panel, it would be beneficial to understand the member journey within a scheme delivered through Darwin. This is important as it drives the metrics that we Most providers on our panel review in this report. now offer contract-based (GPP) and trust (Master Darwin delivers an award-winning member experience for retirement savings, Trust) products. Legislative including auto-enrolment assessment, retirement tools and a total reward outlook changes means that these that enables members to view all of their benefits in one place. As a result, the pension products are now very provider (usually a UK insurance company) acts primarily as an asset manager and similar, as are the terms retirement income facilitator. offered by the providers.
Therefore, our review focuses on the key elements of responsibility for providers For the majority of our within this symbiotic arrangement and includes the following: existing clients, our view is that a GPP with our • Background governance service, run through Darwin, delivers the • Proposition best overall solution.
• Connectivity to Darwin and service Whilst there will be scenarios when a Master Trust is more • Investment: Default options appropriate (and we do consider both), this report • Retirement journey focuses primarily on the GPP market. • Development potential
Background
You may be reading this report to gain more insight into the strengths and weaknesses of your current provider or you may be considering whether to conduct a market review. We therefore aim to provide you with some detailed background about the provider’s past and relevant details about the direction of travel.
For example, there may have been some recent merger and acquisition activity, or perhaps the prospect of changes in ownership. Such changes can be positive for members, but can also be disruptive and unsettling.
Given that pension providers may also be part of a much larger global group, there may also be some insights into the wider successes, or otherwise, of the group. A notable example would be the release of financial results for 2017 or the outcomes of an Investment Governance Committee (IGC) review.
Proposition
This section covers the core components of the provider’s product(s) – what it does and how it compares to our view of what is required.
10 | Pension Provider Report 2018 Most providers on our panel are now able to offer access to Group Personal Pensions (GPPs), Group Self-Invested Personal Pensions (GSIPPs), Master Trusts and Own Trusts. Following legislative changes, these products are broadly similar with regard to the experience delivered to members, but our consulting team can advise clients on the most suitable product to meet their needs.
One of the aims of providers in recent years has been to position themselves to be able to offer this suite of products. Typically, as far as our panel is concerned, this has been achieved by acquisition rather than the launch of new products. This is important to note, as behind the scenes there is the need to achieve system integration and some products have better reputations for service and connectivity than others.
Connectivity to Darwin and service
This of course is of critical importance, as better connectivity equals better member experience. In addition, service levels are also heavily dependent upon a provider’s technological capabilities and whilst some are excelling in this area, others are falling behind in the development race.
The best providers deliver live fund value feeds into Darwin, along with notifications of changes to member fund choice retirement ages. They will also deliver certain governance data fields in a useable member format, rather than more simplistic scheme-level brochures.
Furthermore, the best providers will deliver excellent relationship support, with fast turnaround times, along with the highest attention to compliance, processes and best practice.
Given that one of the providers’ key functions is to collect and invest the contributions, the system capabilities for contribution uploads, new joiner uploads and leaver notifications bears considerable scrutiny by our administration team. These views are shared in detail within the appendices.
The majority of weighting in this category is applied from the views of our own administration team, as this experience has the greatest impact on member experience. However, in order to provide an element of balance to this view and to ensure that we not overlook wider market considerations, we work with our trusted partner, NMG Consulting.
NMG provides a specialist and global view on the asset management, wealth, insurance and reinsurance markets. The application of proprietary research enables NMG to produce considered opinions that are in turn used by financial institutions to help shape strategy and influence change. For our purposes, the view of key metrics across the pension industry are very valuable and some of these insights are shared in the appendices.
Investment options
In our experience, typically around 90% of members invest in the scheme default fund. Whilst details of the self-select range of each provider are included in the appendices, our report focusses on the default investment options.
Pension Provider Report 2018 | 11 The introduction of auto-enrolment in 2012, and ‘retirement freedoms’ legislation in 2015, initiated a reassessment of the best way forward for default fund solutions for Defined Contribution (DC) schemes. These levers for change were also accompanied by concerns over low annuity rates and the risks to members of investing in a heavy concentration of annuity-hedging long gilt assets, which had become very volatile, relative to long-term trends.
These factors were addressed by a greater focus on multi-asset funds, as opposed to 100% equity or equity/bond mixes. These newer funds aimed to deliver greater diversification to help protect from significant equity market falls. All of the providers on our panel have now adopted these principles, which carry through into the pre- retirement and at-retirement phases.
Typically the newer lifestyle profiles are termed flexible, drawdown or universal, although annuity-targeted options are still available for schemes that wish to use them. These lifestyles are now 3-5 years old and are now more comparable, due to a longer performance history.
However, whilst some are true ‘multi-asset’ funds (e.g. Mercer Growth Fund, L&G MAF), others are less diversified than might be expected, investing primarily in equities with a small holding in bonds. This is especially the case in the growth phase, which to some extent is a reflection of market conditions.
In recent years, certain bond assets have delivered remarkable returns, relative to their long-term trends, which has enabled greater diversification whilst still delivering double-digit returns. However, as interest rates start to creep up from the abnormal lows of recent years, bond returns have started to decline and we’re seeing some managers shift to an underweight positon in credit and an overweight position in equities. Whilst this is logical, it does make diversification more challenging, especially in the growth phase.
Our analysis explores the pros and cons of each default solution, with a risk/return comparison provided in the appendices.
Retirement journey
When members reach the point of withdrawal, it is important that the provider can both facilitate their requirements and support the decision-making process.
Since 2015, members have enjoyed much greater freedom in how they manage their income in retirement, but they also need to make a decision between taking an annuity or remaining invested whilst withdrawing an income. Not an easy choice, especially where advice is not readily available.
Beyond this primary decision, lies the choice about how much income to draw and the very real concern about taking too much, too soon. In addition, not all providers will facilitate a direct withdrawal from the plan and members will be required to transfer out and navigate different charging structures and other restrictions.
The best providers offer a lot of support, from concise case studies to online chat and full telephone support. In addition, some will enable members to retain their scheme annual management charge (AMC), will apply no additional charges or restrictions and will allow the whole process to be transacted online.
12 | Pension Provider Report 2018 Some will insist on a transfer into a separate product. This can be viewed as a disadvantage, given the need to endure a transfer process and the application of a different charging structure (often a sliding-scale based on the value of the assets held). However, on the other side of the coin, members gain access to a specialist income withdrawal product, with complementary investment options. Furthermore, from a governance perspective (assuming a member transfers all their assets into the new plan), the employer is relieved of responsibility.
Where the average age of a scheme is relatively high, there is plenty of food for thought under this category.
Development potential
In essence, a strong financial position delivers the ability for a provider to invest in its proposition, increase scale and ultimately increase assets under management. In principle, this should also deliver a better member experience, providing that market competition is not constrained by the emergence of a small number of supersized participants.
A strong financial position should also mean that a provider makes strategic acquisitions, rather than being acquired. Whilst of course this is not a given, it can be an indicator of future stability.
Alongside our own industry experience, we apply input from world-renowned credit ratings agency Moody’s. Whilst Moody’s produces financial strength ratings, the key information is delivered within its published research, which includes influential metrics such as distribution and diversification strengths, credit strengths and weakness, product strengths and weaknesses, potential for cash generation and risks to ratings.
Within this section, we share our view on the market and each provider’s development potential.
Star rating and Thomsons Online Benefits (Thomsons) comment
We purposely do not rank our panel of providers, as we value the specific needs of each of our clients and some providers will be a perfect fit for some and not for others. However, we also recognise the value of delivering some form of assessment and the need to identify areas for improvement. To this end, each provider section contains a star rating (out of five) on the first page.
Finally, we share our summary view under Thomsons comment, which really is our ‘if you read nothing else, read this.’
Pension Provider Report 2018 | 13 Mercer workplace savings Neil Atkinson Head of Proposition
Within the larger corporate DC space, master trusts have steadily been gathering momentum, indeed our 2017 Provider Report drew attention to their rise in prominence and the subsequent Royal Assent of the Pension Schemes Bill cemented A key point of differentiation their place in the future of DC. for MWS is the investment management. This differs As Thomsons Online Benefits is now part of the Mercer group our clients have access from more traditional to a range of services including Mercer Workplace Savings (MWS) and the Mercer provider selection exercises Master Trust. where the investment proposition is embedded As highlighted in the previous section of this report, most Thomsons consulting within the provider, with clients use a contract-based governance structure and are satisfied with this set-up. clients typically adopting off- However, trust clients seeking to outsource governance may well wish to consider the the-shelf default funds. Mercer Master Trust.
Launched in 2011 and now with more than £10bn under management, the MWS proposition provides an end-to-end workplace pension and savings solution which covers provider selection, investment solutions and governance, operational governance and a retirement income service.
MWS utilises a select panel of market-leading providers which is reviewed periodically, a process which Thomsons pension specialists have recently been part of. On a client- by-client basis, a detailed selection project is undertaken to ensure their needs are adequately met by the most suitable provider. This ‘best of breed’ approach provides choice and competition between market-leading administration providers for the benefit of clients and their people.
The panel members are governed by strict contractual service level agreements (SLAs), which carry pre-agreed financial penalties payable to employers for non- compliance; these SLAs are monitored by Mercer on a monthly and quarterly basis. This structure promotes operational excellence for all participating employers and their members.
A key point of differentiation for MWS is the investment management. This differs from more traditional provider selection exercises where the investment proposition is embedded within the provider, with clients typically adopting off-the-shelf default funds. With MWS, clients buy into Mercer’s best investment thinking called Mercer SmartPath™, with the proprietary fund constructs plugging into any of the three panel-providers’ platforms.
The Mercer SmartPath™ framework delivers an investment strategy for each of the three at-retirement options of cash, drawdown or annuity. This open architecture approach utilises the asset allocation and fund selection of Mercer’s global manager research expertise. The Mercer Growth Fund, the fund used within the growth phase of the lifestyle strategies, has produced average returns of 7.8% p.a. (gross of fees) over the three years to 31st March 2018 and has delivered competitive risk-adjusted returns relative to its competitors.
14 | Pension Provider Report 2018 Mercer
At the end of a member’s career the Retirement Income Service provides integrated, personalised support for retirees, giving them the ability to confidently take decisions and act on them. The service has been designed to work with retirees by offering a comprehensive range of services, including education and learning through online capabilities and telephone support, plus a suite of advised services.
MWS is a packaged DC-trust solution and as our integration with Mercer deepens we continue to build greater connectivity between the MWS panel providers, and the Darwin platform. In doing so we can deliver all the great member experience and employer governance familiar to our own group personal pension (GPP) clients, backed up by a market-leading master trust and Mercer’s own investment solution.
Pension Provider Report 2018 | 15 Aegon Kevin Brendling Senior Pensions Technical Consultant
Background
There is no doubting the ambition of Aegon to be a dominant force in the UK pensions market, but there’s also the sense that it doesn’t always know how it wants to achieve this. In recent years Aegon has introduced its At Retirement Choices (ARC) platform, which is essentially a GSIPP with ISA and General Investment Account bolted on. Tagged onto this was RetireReady – a genuine differentiator. Key Points
RetireReady is a more innovative product that seeks to help pension members understand • Aegon identified as one their choices when it comes to readiness for retirement and to understand their access to of nine systemically savings. Members are led through a number of questions and presented with a score that important global gives them a measure of how prepared they are for their desired retirement lifestyle. insurers, with AUM of €318bn. This is a great retirement tool, but the brand name is under review. Why? ‘RetireReady’ seems a very appropriate name for this product and has been popular • ARC is a platform with workplace pension members. Despite this, Aegon feels that the brand may not fit leader in the UK. with its strategy, which now appears to have returned to a reliance on intermediaries, However, the GPP as opposed to seeking customers via more direct routes (D2C). Given that the systems and service RetireReady brand was borne out of the D2C approach, Aegon feels a change of do not measure up to name is required. However, whatever name is chosen as a replacement (and we hope peers. it’s a good one), we have been reassured that the functionality will remain intact. • Plenty of potential, The change of strategy has also been a surprise, but a focus on intermediaries and but the short-term employers is potentially good news for members. When ARC was launched, there was challenge will be to the feeling that intermediaries were very much not what Aegon was looking for, to retain its GPP schemes. the extent that ARC was not built with an outward-looking agenda. To explain, ARC has been built with some ‘baked-in’ limitations, which makes it difficult to meet some third-party requirements. One such example has been the inability to respond to policy detail requests from advisers (e.g. as part of a financial planning review), which has sometimes left members having to act as a go-between.
However, it seems that Aegon has made something of a u-turn, which is welcome news. Furthermore, the acquisition of the Cofunds investment platform (£77bn of assets) and BlackRock’s Compass platform (£12bn of assets) has given Aegon a broader suite of products to go to market with.
Proposition
Aegon offers the four primary group pension products, with the majority of members (957,000) using its GPP and Trust products:
• ARC (Platform, predominantly used for its GSIPP)
• GPP (Group Personal Pension)
• Compass (Platform, offering GPP, Trust, Master Trust)
To date, our experiences with ARC have been mixed. From a member perspective, its modern user interface (UI) and digital capabilities are a definite plus but from a governance perspective it has been more challenging. However, the governance reporting aspects have improved over time, and member-level governance data is now downloadable in a more useable format (whilst static scheme-level only reports, remain the default option under the GPP).
16 | Pension Provider Report 2018 Aegon
For the non-typical pension member that requires a large range of funds, ARC scores highly for volume. There are around 4,800 investment choices available and the site is reasonably easy to navigate, delivering 20 metrics in one view. These include independent performance ratings, full charging detail, yields and dealing times. ARC could certainly not be accused of withholding details, but then again there is a lot of information to view on one screen and when scrolling down the titles disappear!
The GPP is our most heavily used Aegon product and (as we have reported in the past) it feels like a product that is being overshadowed by ARC. A bit harsh? Maybe, but the GPP continues to be the product on our panel that we experience the most issues with and, whilst we have been assured that the GPP is not a dead product and continues to be invested in, it appears to only receive minor upgrades.
For example, until last year members could only take a single withdrawal from their plan. In 2018 members can now take two withdrawals, but on ARC it is possible to utilise monthly drawdown. The feeling (and this is pure speculation) is that it would be too big a job to migrate all schemes from the GPP product to ARC and therefore the GPP must be kept on a pacemaker until this becomes a feasible option.
At present we do not have any schemes with the Compass products and therefore cannot comment on these. However, we are interested to see what Compass can offer, relative to the GPP, and look forward to seeing how this will work when Aegon completes the new front end that will serve both ARC and Compass.
One final point to be made concerning Aegon’s proposition is the disappointing news that the Secured Retirement Income (SRI) option has been removed (from 1st March). SRI was an innovative attempt to bridge the gap between drawdown and annuity and offered savers a guaranteed minimum level of retirement income, regardless of whether the original investment ran out.
Unsurprisingly this guarantee came at extra cost, but one which many were prepared to pay with £1bn of sales since launch three years ago. The removal of the SRI coincides with the sale of Aegon Ireland (which sold the guaranteed products) to AGER Bermuda. Aegon has said that it may resurrect SRI if perceived demand increases in future. We hope that it will, or that another provider may step in to provide better flexibility for members.
Connectivity to Darwin and service/administration
We have a good level of connectivity between Aegon and Darwin for the GPP. This includes the update of fund values, but Aegon does not provide updates on changes to fund choices and retirement ages. Whilst the majority of members (c. 90%) invest in the scheme default fund, and retirement ages are not regularly changed, the responsibility falls upon Aegon members to update their information on Darwin and the member experience can clearly be improved here.
Alternatively, as providers continue to embrace single sign-on (SSO) capability, members will be able to seamlessly access the provider site for these elements. Aegon has developed SSO to enable ARC to connect to third party portals and we hope to have this in place by the end of the year, subject to the completion of a legal agreement and IT build activity.
Pension Provider Report 2018 | 17 Aegon
On the servicing side, there is room for improvement and with a renewed focus on the intermediary market it will be interesting to see whether this filters through to the GPP side.
Our impression is that the back-office systems are buckling under sustained pressure and timescales for the supply of governance data are fund updates among other things are routinely missed. This view is backed by NMG’s summary of the market, where Aegon received the lowest score on our panel for operations.
There have been two notable issues over the last couple of years, where contributions have not been applied on time and where fund charge rebates have not been applied, despite sitting in Aegon’s bank account. This raises some important questions about the provider’s compliance capabilities and processes, and why these issues were left undetected.
Having said this, Aegon have quickly put the most recent matter right and our new Aegon Client Service Manager has been proactive in bringing the right people together to deliver a resolution. This action has restored some confidence in the provider’s ability to deliver a good level of service but we will need to see sustained action on this front before full confidence is restored.
Investment: default options
The relationship between Aegon and BlackRock is a long-standing one, with the asset manager supplying Aegon’s internal fund range. It is no surprise then that Aegon’s Workplace Target fund range (default options) are predominantly invested in passive BlackRock funds.
Being the world’s largest asset manager provides BlackRock with tremendous opportunities to deliver economies of scale, hence the low-cost of its passive range, which makes it a go-to manager for default funds.
However, the issue of historic pricing with these funds (which results in a time- lag between the fund and its benchmark) remains a source of consternation and ultimately this can be misleading for governance committees and members alike.
The Workplace Targets are simplistic instruments (and merely a rebrand of many existing options), but they do offer choice and are neatly arranged into risk-rated, retirement-targeted solutions with the option to apply active management and ethical iterations where required. Alternatively, the default-default, so to speak, is the Aegon Default Equity and Bond Lifestyle Fund.
Where an average-risk, multi-manager and flexible retirement option is required, Aegon offers its Universal Balanced Collection (Flexible Target). This option initially invests in the UBC, a fund which in the past has borne scrutiny over its performance, which has lagged behind the competition. However, the fund performed more in-line with its peers in 2017.
Beyond this multi-manager option, the majority of which is still passively managed via the underlying Balanced Passive fund, there is nothing especially ground-breaking – nothing to push the boundaries of an evolving investment market. The Workplace Target range continues to feel like a low-cost solution, rather than a high-value approach.
18 | Pension Provider Report 2018 Aegon
When other providers can offer active fund management (not that this is necessarily better) at no extra cost, funds that track non-market cap weighted indices, ESG options and investment into futures contracts, the Aegon cupboard looks a little light on inspiration.
A further frustration with the Workplace Targets range is the de-risking phase, which predominantly relies upon Aegon’s target-dated Multi-Asset Fund (MAF). Whilst we support the use of a multi-asset approach as members approach retirement, this is essentially quite a traditional equity/bond fund with a long-term strategic asset allocation. Again, it seems that cost may be the key factor driving decisions.
There are two matters of concern here, the first being that the asset allocation does not appear to undergo any formal review, or at least if it does this is not published via the IGC or other channels. The second issue is the lack of transparency. Aegon’s view is that this is an ‘internal fund’ and therefore it does not publish factsheets for the fund and does not provide a benchmark for performance, or indeed any coverage within the IGC report.
Our view is that a default investment approach should be clear about its aims and objectives (as per the Department of Work and Pensions - DWP - guidelines) and that members, along with scheme advisers, should have barrier-free access to the performance of this fund. We have asked Aegon to review its position on this matter and would hope to see this quickly addressed.
Our hope is that greater scale, and the need to re-engage with intermediaries, may help to drive change and deliver a stronger default investment range.
Retirement journey
When members are ready to start accessing their retirement pot, they are directed to the RetireReady site. This provides some excellent tools for members, which can help them plan for retirement. This includes features such as the retirement needs calculator, which enables members to assign monthly values to treats, restaurants and holidays. In addition, the retirement planner enables members to model different methods of drawing an income.
The site benefits from Aegon’s investment in digital and provides members with an informative and engaging online experience. Furthermore, if additional help is required or members just wish to speak to someone, they can contact Aegon Assist.
With regard to actually making withdrawals, this has to be transacted via the product invested in and it is far better for members to be on the ARC platform, as opposed to the GPP.
Under ARC, members can set-up full drawdown functionality, take ad-hoc lump sums or seek to purchase an annuity. However, it should be noted that Drawdown access is charged at £75pa and whilst this is not unusual, other providers on our panel do not charge for this.
Pension Provider Report 2018 | 19 Aegon
Under the GPP, however, members can only make two partial withdrawals per year, which could hardly be termed ‘embracing pension freedoms.’ This is symptomatic of trying to make an old product learn new tricks and it is clear that Aegon are constrained here.
Development potential
Aegon has made two notable acquisitions in recent years, with the addition of the Cofunds and BlackRock platforms. These purchases have bolstered Aegon’s member numbers, but also its assets under management and suite of products.
Given that Chief Executive, Adrian Grice, is billing Aegon as a back-book platform consolidator, further purchases are likely to follow.
However, it seems unlikely that anything on a similar scale will happen anytime soon (given the disruption this would cause) and Aegon is already incurring considerable costs as it works to integrate the Cofunds and BlackRock Compass platforms. These costs were recently reported to be around £94m4 and Aegon is apparently in talks with Fintech company (FNZ) about the Cofunds integration.
FNZ appears to be winning a lot of platforming business at present, but there are concerns that it may be over-stretching itself in the process. In our experience, these platforms also tend to be a little less flexible than others (e.g. with regard to the refund of contributions in the first month opt-out window and the management of fund options), although it is not clear how much of this is driven by the provider.
The plan is to deliver a new front end for both ARC and Compass and digital development costs are rumoured to be around £20m for this year, which may seem small in comparison to what other providers are investing. However, given that Aegon already has a digital solution in place, it could be argued that it doesn’t need to match the spending of some of its peers.
Having said this, the GPP would benefit from some much-needed investment to improve functionality, although this seems unlikely to transpire on any significant scale. Furthermore, the restructuring costs that Aegon is currently absorbing will of course constrain the potential for investment in this product.
Aegon’s financial position is a little more arduous to comprehend than with some of its rivals, given that it is a Dutch company with a UK operation. Moody’s awarded an A3 long-term issuer rating to the Aegon Group (Aegon N.V.) in 2009 and this level has been maintained, which is a couple of notches lower than some of the other providers on our panel.
However, its rating outlook was changed from negative to stable in December 2017, in recognition of its good level of geographic diversification and the successful offset of lost earnings, following the sale of its annuity business in 2016. This action coincides with Moody’s wider view that economic growth, financial stability and underwriting discipline are offsetting the challenges of the low interest rate environment for the European insurance industry.
Moody’s also notes that the G20 Financial Stability Board has identified Aegon as one of nine systemically important global insurers, which reflects the overall scale of the group (€318bn AUM at 31.12.17). This should enable it to stand on its own two feet and in time to increase its profitability.5
4. https://corporate-adviser.com/annuity-market-shrinks-canada-life-buys-retirement-advantage/ 5. http://www.genre.com/knowledge/publications/iipc1611-en.html
20 | Pension Provider Report 2018 Aegon
The ability of Aegon UK to increase its profitability and to continue to invest in its products, will depend on its success in growing its platform and increasing assets under management. The BlackRock and Cofunds acquisitions increased assests under management (AUM) from £9bn in Q2 2016 to over £100bn and Moody’s asserts that Aegon has been the leader in the UK platform segment. The Edinburgh based platform will be keen to maintain this position and further increase its AUM, but the challenge will be to complete this integration whilst maintaining a high level of customer service. It is this aspect that has come under scrutiny in recent years.
TOB comment
So, as a pension provider, Aegon is a bit of a mixed bag at present. On one hand, the GPP product has seen better days and some of the compliance-related issues are of significant concern. The alternative is ARC and this certainly provides a better user experience in some areas, but most schemes are still on the GPP and cannot simply be lifted and dropped onto ARC. Instead a formal transfer process would be required and at present ARC does not have contract-enquiry and therefore cannot connect with Darwin.
The next wave of connectivity software (APIs) could solve this problem, however, the development spend for now will clearly be focused on integrating Compass and Cofunds.
There is plenty of potential here, but at present it looks to be a wait and see for Aegon. In the meantime, the biggest challenge will be to try and retain its GPP schemes, by moving these onto ARC.
Pension Provider Report 2018 | 21 Aviva Kevin Brendling Senior Pensions Technical Consultant
Background
There’s a tangible buzz around Aviva at present. Driven forwards by CEO Mark Wilson, Aviva is becoming increasingly profitable and is fast transitioning from a UK- based insurance company to a global fintech.
This embracing of all things digital, is setting it apart from the competition and the commitment to deliver customer service rated in the top 10 for UK businesses is an incredibly positive ambition.
The ‘99 in 3’ plan is a prime example of this intent. In principle, Aviva aims to Key Points deliver 99% of customer requests in no more than three days from start to finish. Furthermore, this commitment would not allow the clock to be stopped to make this • Early investment in target easier. digital and data analytics is reaping rewards for ‘Ask it never’ is another bold concept that demonstrates Aviva is not paying lip- Aviva, with exciting service to customer experience, but instead is applying data analytics to revolutionise enhancements to experience. As the television ads demonstrate, customers are no longer being member experience due burdened with the need to supply intricate or difficult-to-locate details, when Aviva throughout 2018. can obtain this from official sources. Where such details can only be provided by the customer, Aviva will only request the information once and this will be available at • Renewed commitment renewal stage and for additional product purchases. to digital spend - £100m-pa. It is this application of data science that is driving change and Aviva appears to be leading the pack here. Data aggregation presents the opportunity to better • Robust GPP product, understand customers’ needs and having started this process early, it now has all of its superior connectivity data (including legacy products) in one place. This enables the provider to drill down to to Darwin, excellent a much more granular level and to better personalise member experience. service and support.
The decision to ring fence the digital part of the business and to create a non- • Plans to deliver market- insurance culture, attracting the right people, is now reaping rewards. Furthermore, leading personalised Aviva is demonstrating the value of ‘platform’ by employing a multi-discount strategy. default fund. This approach assisted in driving up new business values in 2017 (+25%), which is generating cash for greater investment in digital.
In a fast-shrinking market, it is vitally important that providers can attract and retain assets. Those that manage this successfully can then apply more favourable economies of scale and deliver higher levels of investment into their propositions. Ultimately, this should equate to better member experience.
Of course, while this all sounds great, Aviva still has to deliver on its ambitious targets and must do so consistently. However, if successful, this provider could really dominate the GPP market in the UK for years to come!
22 | Pension Provider Report 2018 Aviva
Proposition
Aviva continues to offer a Master Trust and three contract-based products:
• Designer (GPP)
• NGP (GPP)
• MyMoney (GSIPP)
Whilst a Master Trust will be a suitable product for some (e.g. when coming from a historically trust-based environment), the majority of our clients have been best served by contract-based products. However, given that there is now little tangible difference between Master Trust and GPP, and charges are broadly similar, there is more scope to utilise Master Trust, where appropriate
For now, our focus remains on contract and the Designer and NGP products, which are primarily designed to accommodate medium sized schemes (500 to 1,000 members) with a heavy reliance upon the default investment strategy.
In contrast, MyMoney is designed to accommodate larger schemes, where a significant proportion of members are likely to require access to a wider range of investment options, requiring the functionality to make regular trades. This product sits on the FNZ platform, which is less flexible in its connectivity with Darwin, relative to some other platforms. However, we do have SSO with MyMoney, which provides a seamless transition from Darwin to the product, and this feature enhances member experience.
All three products are accessible through the MyAviva app, which in itself is a strong part of the overall proposition, unrivalled by the other providers on our panel. With fingerprint login already in use, and facial recognition technology recently introduced, upgrades to functionality are now coming thick and fast.
Whilst it was initially expected that NGP would migrate to Designer, it is intended that the three products will continue to operate on a stand-alone basis. This decision is officially based upon the view that each has its own merits and where Designer and MyMoney are concerned, we would agree.
However, in our experience, Designer GPP is a stronger product than NGP and offers a wider and arguably better fund range, along with more sophisticated default investment options. This view is backed by NMG, as the NGP product consistently generates lower market feedback scores.
The suspicion is that migrating NGP to Designer would be a considerable project and one that Aviva may not wish to undertake at present. Having said this, the good news for NGP members (and indeed MyMoney members) is that the default fund (the MyFuture Investment Programme) will be undergoing a much-needed makeover.
MyFuture is a relatively simple, and low-cost default investment solution that relies on a number of underlying BlackRock passive funds. In contrast to the Future Focus options available through Designer, it is less sophisticated, less diversified and more constrained in its asset allocation.
This is no great surprise, given that Future Focus is managed by Aviva Investors and the refresh of MyFuture will be a welcomed result for ex-Friends Life members.
Pension Provider Report 2018 | 23 Aviva
Since our last review, Aviva has introduced integrated drawdown to both Designer and NGP, which allows members to withdraw directly from their plan. This is good news and brings both products in-line with MyMoney, which already delivered this access.
One aspect that we have been asking Aviva to improve upon is the retirement journey for members. Currently this works on a paper-based process, which is out of kilter with Aviva’s commitment to digital. It also slows the timescales for members to acquire their money, as they must wait for the pack to arrive, complete the paperwork and return it for processing.
Thankfully, Aviva has now created an online journey, which includes an interactive online retirement pack, with all the options available to select online. This is due for release in Q2/Q3.
Service/administration and connectivity to Darwin
Whilst much of the technological advances are still to filter through, our experience of Aviva continues to be excellent for the Aviva Designer GPP product and we anticipate greater parity with NGP and MyMoney in future.
We have full connectivity between Aviva and Darwin on Designer GPP, and via SSO with MyMoney, and have an excellent working relationship with Aviva.
The Aviva team are supportive, proactive and deliver to a consistently high standard. Furthermore, the Designer GPP is a very robust product and the software and processes for managing our clients’ monthly submissions are dependable.
Essentially members can use Darwin to understand their pension scheme, change contributions and model their retirement income. Later this year, it is anticipated that they will then be able to SSO into MyAviva and into the relevant product to make fund switches.
Beneath each product sits Appian, a US-based low-code platform that operates as a workflow system. This allows Aviva flexibility in how it delivers customer service, as it maps tasks to the correctly skilled person whether the enquiry is generated by phone or email.
It is also important to note (as with some other providers) that call centre staff are not pressured to complete phone calls within a certain time, with the focus firmly placed upon first time resolution.
As highlighted earlier, Aviva is taking this commitment to customer service one important step further, with ‘ask it never.’ A prime example of this is in the case of death claims, where the executor of a will is required to provide a death certificate to many organisations simultaneously. Aviva have linked up to the death certificate register and therefore no longer need to ask for this (for fund values under £50,000).
It is no surprise then that NMG’s survey of market opinions shows a significant improvement in sentiment towards Aviva, with scores up in every category, relative to last year. Furthermore, of the providers connected to Darwin, Aviva’s Designer GPP is rated highest in three of the four core categories. This view is mirrored by our colleagues, who have also reported that Aviva’s processing of individual pension policies is extremely proficient.
24 | Pension Provider Report 2018 Aviva
Investment: default options
As highlighted earlier, Aviva’s Future Focus default funds are our go-to option under Aviva is developing a strategy the Aviva product range. Simply, this is because they are actively managed at no that will increase the level additional cost and invest into volatility-targeted funds that have a wide investment of diversification, coupled remit. with greater use of artificial intelligence and robo-advice. The underlying diversified asset funds are not constrained to an asset-restricted sector This will provide members (like many of their peers) and this wider flexibility has allowed them to outperform in with the ability to tailor recent years. a lifestyle to their own requirements by pulling In our view, they are one of the best options available from our panel of preferred specified levers – e.g. time to providers. However, one of the benefits of greater scale is the potential to access retirement, attitude to risk more expensive assets, such as private equity and infrastructure, and plans are afoot to etc. This ‘gold option,’ due introduce something quite innovative. in 2019, looks potentially market-leading and will be a Aviva is developing a strategy that will increase the level of diversification, coupled big step forward if they can with greater use of artificial intelligence and robo-advice. This will provide members deliver it. with the ability to tailor a lifestyle to their own requirements by pulling specified levers – e.g. time to retirement, attitude to risk etc. This ‘gold option,’ due in 2019, looks potentially market-leading and will be a big step forward if they can deliver it.
There are also development plans underway for MyFuture Lifetime, which is the default solution for the MyMoney and NGP platforms. In short, the asset allocation for the underlying funds will be brought more in-line with its peers (from a growth and diversification perspective) and a layer of tactical asset allocation will be applied by BlackRock (a change from Moody’s Analytics).
Furthermore, Aviva’s transition from a reliance on BlackRock Aquila funds to a TTF (Tax Transparent Fund) structure for these funds will deliver two key advantages. The first being that this action will ring fence members’ benefits, in the worst case scenario that BlackRock ever runs into difficulties. The second, that this project will help to address the historic pricing issue on these funds, delivering greater clarity around returns.
Both of these changes are welcomed improvements, due for delivery in Q2/Q3.
Retirement journey
At present, Aviva’s process is to post a retirement pack to members as they approach their selected retirement age (or upon a phone call request). Members can use the information provided in the pack, and online, and are required to return a paper form before funds can be released. (Please see the development potential section below, which details some of Aviva’s upcoming upgrades for this aspect).
Aviva members have largely restriction-free access to their plan. There are no additional charges for access and the same charging structure applies (this often differs with other providers, when charges are based on a sliding-scale, dependent upon fund value). Furthermore, there are no maximum and minimum limits (within reason), the one minor restriction being that there is a maximum limit of six withdrawals per year.
Pension Provider Report 2018 | 25 Aviva
Whilst this is a marginal limitation and can be easily planned around, it should be noted that withdrawals cannot be arranged in advance. We have fed-back our concerns about this part of the process to Aviva and would expect this aspect to be addressed in future, as clearly taking an annual sum may tick a box for convenience, but may also not the best strategy from an investment perspective.
Development potential
Of course a strong financial base plays a key part in delivering better products, attracting more customers and expanding assets under management.
Since the £5.6bn acquisition of Friends Life in 2015, Aviva has expanded its customer reach within the UK market, written off debts, sold businesses and improved its capital adequacy rating from 180% in 2015 to 193% in June 2017. This refining of its financial position has not gone unnoticed and is reflected in the financial strength rating upgrade by Moody’s for the subsidiaries of Aviva Plc (to Aa3).
The 2017 financial results delivered some very positive figures for Aviva, including the following:
• Assets under management up (from £450bn) to £490bn.
• Group new business (VNB) up 25% to £1.24bn.
• Earnings per Share – up 7%.
• UK Insurance Operating Profit – up 13%.
• Aviva Investors Operating Profit – up 21%, with net inflows of £1.6bn.
• Digital Premium at £1bn.
• Bulk annuity sales trebled.
• 30% of global customers have more than one product.
These figures will allow Aviva to spend £2bn this year to reduce debt (£900m), returning capital to shareholders (£500m) and the addition of some bolt-on acquisitions (£600m).
Part of the 2017 success was due to return on investment in its digital proposition, but also the power of scale and platform. In the CEO’s view, larger brands have prospered from Brexit concerns and the discounting strategy on its platform is encouraging customers to add extra products.
As a result, Aviva has now committed to an annual digital development spend of £100m and its Digital Garage is rapidly expanding from a headcount of 30 two years ago to 1,500, with plans to double this to 3,000 in 2018.
With sites in Hoxton (London), Paris, Singapore and Toronto, this is very much a global approach and the decision to recruit from outside the insurance industry (including from the gaming community) is helping drive Aviva’s digital revolution and ultimately improve user experience. It is also notable that this part of the group is generating its own profits, which exceeded those of Aviva Investors in 2017!
26 | Pension Provider Report 2018 Aviva
The digital roadmap for its pension products is also exciting, with regular upgrades due this year, and the ex-Friends Life products (NGP and MyMoney) and Aviva Designer GPP will soon start to look and feel the same.
While some providers are championing the move from postal annual statements to online versions, Aviva is developing personalised video messaging that will not just deliver a fund value, but will also include spoken details about a member’s potential retirement lifestyle. The link-up with Amazon’s Alexa product (a digital intelligent voice recognition assistant), from Q2 2018, will help to break the perception of reserved insurer and instead reinforce Aviva’s digital credentials.
It seems then that Aviva is sitting pretty and it will be interesting to see which innovative acquisitions it lands next, with Wealthify (a discretionary investment app available through MyAviva) a recent example.
TOB comment
So, exciting times at Aviva and as they say, ‘better to aim high and miss, than aim low and hit.’
For us, Aviva continues to set the standard for others to follow and continues to excel against our core metrics. The packed roadmap for upgrades is impressive and will serve to further strengthen its position both in the market and on our panel.
Just a year ago we raised one area where we would like to see Aviva do more, and the online retirement journey (instead of just a paper-based approach) is now due for delivery in Q2. At the same time we highlighted Aviva’s £50m commitment to digital development in 2017. A year on and this been increased to an annual commitment of £100m.
We look forward to reporting on more upgrades as these are delivered.
Keep up the good work, Aviva!
Figure 3: Aviva's product roadmap6
6. Aviva
Pension Provider Report 2018 | 27 Legal & General Michael Probert Senior Pensions Technical Consultant
Background
Legal & General (L&G) remains one of the most widely recognised names on our panel. Its position as a leading global asset manager (with £983bn in AUM), the UKs largest provider of individual life assurance products (with £2.5bn in annual premiums) and its involvement in one in five UK mortgage transactions in 2017 (with £65bn of mortgages facilitated) mean that you do not need to be one of its 2.7m pension members to be familiar with the company. Its retirement business is, however, a major force in its own right and 2017 was a very strong year for it, with profits up 54% to £1.24bn.
Whilst L&G may have built a reputation in the past as the go-to for low-cost, retail Key Points employer pension schemes, there is a definite aspiration to be known for more in the pensions space. Having recently won a number of large, non-retail opportunities, it • Largest asset manager seems the provider is making some good progress here. UK DC AUM increased 19% in the UK (£983bn in 2017 to £68.2bn and there was a 20% increase in customers on its Workplace AUM), with significant pension platform. With the addition of a commitment to significant investment in scale. developing its digital proposition, it is unlikely that L&G will be going anywhere any • Offers competitive time soon. terms.
Proposition • Leader in default fund design and low carbon. Whilst we currently only have a handful of schemes with L&G, it is a significant player in the UK pensions market, with a current market share of around 21%. Its proposition includes the contract based Worksave Pension Plan (either GPP or GSIPP) and Group Stakeholder Pension Plan, as well as the trust-based Worksave Pension Trust and Worksave Master Trust.
The Worksave Pension is a no-nonsense group pension arrangement, doing everything you would expect from such a large provider in the market and offering a number of leading default investment solutions. Currently there are around 13,000 UK schemes.
As many of its competitors deal with the integration of acquired products, L&G is relatively stable in this regard and is also not constrained by the associated costs of such projects. As a result, the Worksave Pension Plan (our current go-to product) should remain stable, with a consistent experience for members and advisers alike.
Connectivity to Darwin and service
Whilst we only hold a small number of schemes, our relationship with L&G continues to be positive. Service levels continue to be good, and we have no outstanding or recurring issues with any services.
Contract-enquiry should shortly be available and this will put L&G on par with Aegon (GPP), Scottish Widows and Standard Life, with regard to connectivity.
One advantage for L&G is that SSO has already been developed and installed and this form of connectivity is one that many of its competitors are still developing (with some yet to make a start).
28 | Pension Provider Report 2018 Legal & General
Investment: default options L&G’s Future World Fund The drive towards more diversified assets by most of the industry in recent years is is one such example - a encapsulated by the L&G Multi-Asset fund, which offers a true multi-asset strategy. low-carbon fund that The ability for multi-asset funds to move between different asset classes as and when seeks to influence change, needed is incredibly important when trying to mitigate volatility. In contrast to some whilst aiming for better ‘multi-asset’ funds, which are not especially well diversified, the L&G Multi-Asset risk-adjusted returns. fund does what it says on the tin. The performance of the fund has been broadly as Unsurprisingly, it invests expected and this remains one of the best constructed default funds around. in companies that support a low-carbon approach, A true multi-asset approach has also driven the ability to reduce dependency on but crucially it invests in a lifestyling. There are different points of view about the effectiveness of long de-risking climate balanced factor index strategies, but L&G believes that shorter lifestyling (three years) is more appropriate, created with FTSE Russell. given that members often do not know when they will retire until they are very close to that point.
In principle, a more diversified approach should deliver lower volatility and reduce the need for lifestyling. As a result, L&G’s preferred default option is to discard lifestyling altogether and for members to invest solely in its Multi-Asset fund. Volatility control therefore becomes a crucial aspect, rather than a ‘nice-to-have.’
Our risk/ return chart in appendix 5 shows that this strategy has been effective over the last three years, with the fund delivering optimal risk-adjusted returns, driven by its asset allocation. Whilst market conditions must also be taken into account (e.g. the recent falls in equities and bond returns) the fund has delivered competitive returns over this period, despite only investing 40% in traditional equity assets. This contrasts with its peers, that invest almost twice as much in equities.
Not satisfied with having a market-leading multi-asset solution, L&G has also been looking to the future of members’ investment needs in retirement. At present, the majority of retiring L&G members opt for encashment. However, as DC pot sizes grow to levels that are more supportive of drawdown, default funds will need to accommodate differing needs, including some annuity hedging for later life.
In a similar way to Aviva’s forthcoming default investment upgrade, L&G has already launched Pathway (albeit without the personalisation aspect). This approach applies target-dated funds (which will be more familiar to our US clients) to accommodate four phases of a member’s saving and income withdrawal requirements – growth, steady growth, preparing for retirement and retirement. The key difference being that that the zero years to retirement is not the end of the glidepath, instead a further 20 years is catered for.
In addition to forward thinking fund design, L&G also has an admirable investment philosophy. In the past, little fuss has been made of its commitment to responsible investment, however with more investors considering, environmental, social and governmental factors when making their investment decisions, L&G’s approach is worthy of greater attention.
L&G’s Future World Fund is one such example - a low-carbon fund that seeks to influence change, whilst aiming for better risk-adjusted returns. Unsurprisingly, it invests in companies that support a low-carbon approach, but crucially it invests in a climate balanced factor index created with FTSE Russell. Such alternatively- weighted indices offer better risk-adjusted potential than the traditional market-cap driven approach, as they seek value stocks, with higher quality and lower volatility characteristics.
Pension Provider Report 2018 | 29 Legal & General
It is L&G’s considerable asset management scale, and passive expertise, that make these solutions viable and this punching power carries wider influence. With corporate governance coming under greater public scrutiny, its inclusive capitalism ideology and ‘active ownership’ approach does make it stand out from its peers as a leader. This was evidenced by its vote against 215 executive pay deals in 2017, along with a promise to tackle the low level of female representation on the boards of the UK's 350 biggest public companies. L&G will therefore oppose the reappointment of chairs where women account for less than 25% of the board.
Development potential
As referenced earlier, a strong financial footing is a crucial starting point for any successful development strategy. L&G are certainly in positive shape here, with 2017 providing a record set of financial results.
2017 saw operating profit up 32% to £2,055m (from £1,562m in 2016). This was aided by the inclusion of a ‘mortality release’ of £332m. This was a release of funds that had been previously held in reserve in order to cover annuity contract payments but that, due to a slowdown in increases to life expectancy, were no longer required. As the company’s mortality assumptions are currently based on 2015 actuarial data, there are likely to be further reserves being released in the next couple of years as the mortality figures for 2016 and 2017 show a continuation of the slowdown in mortality rate increases.
In light of the above positives, it may surprise some to see that the financial strength rating listed in this year’s report (A3) is lower than it was in last year’s report (Aa3). It is important to note that this is due to the reassignment of the workplace pensions business from L&G's assurance arm (LGAS) to its Investment Management arm (LGIM), meaning that the financial strength rating applicable is now that of the Legal & General Group plc. This move did result in the loss of some existing staff, however L&G remains confident that this move will have no significant negative side-effects and so this should not negatively impact its development potential.
Moody’s has identified LGIM as being a source of great benefit to L&G plc, including its cash generative nature, but also its experience in liability driven investments (which supports its ability to compete for bulk annuity business) and the support provided to growing its DC pension business.
Bulk annuities are a key business line for L&G and are profitable. In 2016 it significantly increased sales, supported by back book acquisitions, which drove the group’s increase in gross written premiums to £10.3bn (from £6.3bn the previous year). By the end of 2016 annuity assets had increased by 25% to £54bn, which included the £2.9bn acquisition of individual annuities from Aegon and at H1 2017 these assets had increased again to £55.6bn. In a shrinking market, L&G looks to be well-placed, with some predicting a bumper year for the bulk annuity market.
So will this profitability deliver greater investment into WorkSave? Well, we understand that L&G has committed to significant investment in developing its digital proposition, which is certainly welcomed. However, without this being quantified, it remains to be seen whether this will be sufficient to keep pace with the heavy investments being made here by some of its rivals. With some already well ahead in respect of their digital propositions, L&G will need to maintain a strong focus in this area if it is not to lose further ground.
30 | Pension Provider Report 2018 Legal & General
One other item of note is that L&G have taken a minority stake in fintech company Smart Pensions, which is a Master Trust offering a free-to-use AE solution with access to L&G funds.
"Smart Pension is the only free-to-use end-to-end solution providing scalable and affordable workplace pensions for SMEs and, through our hugely successful Adviser Platform, their professional advisers. While nearly all our competitors are now charging employers to set up a workplace pension, the ease of use and automation of our platform means we can still provide our workplace pension at absolutely no charge to employers or their advisers."7
Retirement Journey
As referenced earlier, L&G has long been the go-to provider for retail employers looking for low-cost schemes. It is perhaps unsurprising then that the average fund value of its 2.7m pension members, at around £10,000, is the lowest of all the providers on our panel. With around 95% of the pension policies settled worth under £30,000 and two thirds of these taken as cash, it is understandable that there has not been a rush to enhance the retirement journey experience.
However, this approach does have implications when we look to place a scheme, as clearly it is better to showcase to clients what providers can offer, as opposed to what they might offer in future.
The current £250 fee payable to access income drawdown via the Worksave GPP and GSIPP does not compare favourably with some its peers, and the same is true of the requirement to submit a paper application form in order to access funds. However, once these initial hurdles have been overcome, the experience is broadly similar to that offered by its peers. Members with a pot of at least £30,000 are able to take one free withdrawal a year (£20 for any subsequent withdrawals) and access both SIPP functionality and drawdown directly from their existing pension policies.
There are also a number of useful and interactive retirement planning tools available to members that enable modelling of various income scenarios. In addition, the number of lifestyle strategies offered means that most should be able to find a de-risking strategy suitable for their needs.
With regard to the support provided to members in making decisions about how best to access their savings, L&G provides a comparison between encashment, drawdown and annuity. This includes some useful insights, such as the things to consider tab which highlights the tax implications, and video case studies. However, the look and feel of the site is very old-school and much less engaging than some of the more advanced providers that have delivered a much better experience to date.
Once members are ready to make a decision, they are encouraged to call L&G to order their retirement options pack. Again, this process could deliver a much improved user experience with the option to transact online. This is one area where L&G has some catching up to do.
7. Smart Pension co-founder and MD, Will Wynne, https://www.autoenrolment.co.uk/press/legal-and-general
Pension Provider Report 2018 | 31 Legal & General
Thomsons comment
L&G continues to offer competitive terms and a solid proposition capable of delivering to the needs of the majority of employers. With big ambitions backed by strong ethics, and solid recent growth figures, it is clear that L&G remains in a good position, if currently slightly behind some of its competitors with regard to retirement experience.
With investment in its digital proposition to come, there are lots of reasons to be positive, and the legal sign-off to improve connectivity to Darwin will be a significant step forwards. We remain hopeful that there will be some progress here in the coming months. With it, the chances of us placing a greater number of schemes with L&G would be markedly improved.
32 | Pension Provider Report 2018 Royal London Michael Probert Senior Pensions Technical Consultant
Background
2017 was a good year for Royal London. Impressive headline figures, with sales up 38% and operating profit up 17% on 2016, were backed up by a number of industry awards recognising the strength of its offering. However, whilst its market share also grew, this remains a modest 7% of the UK pensions market (up from 5% in 2016) and currently Thomsons has no clients using Royal London for pension provision, meaning the scope of our assessment is heavily limited.
As the only mutual company on our provider panel, Royal London has the unique ability to share profits with its policyholders (the company is owned by its policyholders Key Points and is the largest mutual insurer in the UK, with total AUM of £112,779m.). In 2017, its Profit Share scheme distributed £114m to more than 905,000 policyholders, with • Strong proposition pension policyholders included in the scheme for the first time and the Profit Share recognised by growing payments effectively knocked over a third off the charges levied on the plans of a business and numerous quarter of a million pension policyholders. industry awards.
After offering its products via advisers and intermediaries for the previous 100 odd • Lack of connectivity years, in 2013 Royal London launched its products direct to consumer business and with Darwin currently since 2015 it has operated under the single ‘Royal London’ brand, with numerous sub- proving a barrier to use. brands that had been acquired falling under the unified brand. This was accompanied by a successful £10m brand awareness campaign under the slogan “We’re so • Lack of existing yesterday,” playing on the longevity of the business and what it deems to be its ‘old- business limits scope of fashioned’ values. assessment.
However, with many of its larger competitors heavily investing in the technologies of tomorrow, it may be difficult for Royal London to keep pace and continue to build on its recent successes.
Proposition
Royal London’s workplace pension proposition is unlike all of the other providers on our panel, as it excludes Group Self Invested Pension Plans and instead solely offers Group Personal Pension Plans, and focuses on supporting smaller schemes and their advisers. The provider has enjoyed growth in recent years, off the back of auto- enrolment, with many new schemes launched. The upcoming automatic increases coming in 2018 and 2019 will further add to its growing assets under management.
At H1 2017 New Life and Pensions business grew to £6,078 (up 45% from £4,201 at H1 2016). Following the first positive contribution from new business at the end of 2016, new business continued to grow in 2017, contributing +£0.9m in H1 2017 compared to a loss of £5.2m at the same stage in 2016.
Pension Provider Report 2018 | 33 Royal London
Connectivity to Darwin and service The majority of Royal Currently there is no established connectivity between Darwin and Royal London. London’s distribution is Whilst there is a strong desire from Thomsons to develop this, there is some made via the IFA channel, understandable reluctance from Royal London to commit the necessary resources which requires a high-level to establishing system connectivity without the schemes in place that require this. It of customer service in order may be that a leap of faith is required from one side in order to open the door to Royal to be successful. This is an London as a true competitor to some of its bigger competition. area where the provider excels and with increased Similarly, given we have not recently placed any schemes with Royal London, we profitability and a strong cannot provide a detailed critique of its service offering. However, the proposition capital position it has been offered by Royal London does seem to be very well received, obtaining the highest able to invest in its business scores in all four areas covered by NMGs provider analysis; Product and Proposition, and Profit Share is an Relationship Management, Operations and Online/Technology. example of this success. Investment: default options
Royal London’s default fund offerings remain one of its biggest strengths, with six lifestyle strategies designed to cater for different risk profiles and retirement income strategies.
These risk-rated lifestyle strategies are an innovative range of default options which utilise funds from the very successful Governed Range, which in Q1 2018 reached 1m investors. These funds are designed to help members reduce risk to their savings as they get closer to retirement and include automatic rebalancing, dynamic switching and on-going governance at no extra cost.
Royal London has demonstrated an ability to deliver consistent returns since its launch in 2009, and has been awarded numerous industry awards in recognition of its innovative and effective design, including the 2017 Corporate Adviser award for Ultimate Default Fund, with good prospects of a repeat in 2018.
Retirement journey
Whilst Royal London is very strong on its investment approaches in the lead up to retirement, access to wealth remains an area where it could become more competitive. With many providers looking to make the journey from saving into retirement-spending simple and pain free, this is one area where Royal London falls behind some of its peers.
Where other providers now offer income drawdown facilities directly from existing GPPs, Royal London requires a transfer of assets into a new policy to facilitate this, with the accompanying burden of paperwork to be completed and a potential increase in ongoing management charges. Access to lump sums via a UFPLS (uncrystallised fund pension lump sum) also compares unfavourably to some of the other providers, with Royal London imposing a minimum withdrawal level of £1000 and a one-off charge of £199 for making more than one withdrawal in a year. These limitations contrast with others (Aviva and Scottish Widows) that apply no minimum levels and no charges.
34 | Pension Provider Report 2018 Royal London
Development potential
Whilst Royal London’s mutual status allows it to offer its Profit Share scheme, with the effective reduction in charges setting it apart from some of its competitors, it does create some limitations. In the past many of its peers were also ‘mutuals,’ but the difficulty with this approach is that capital cannot be raised through policyholders. In contrast, where a company is owned by its shareholders it has access to capital markets and in stressed environments this can be beneficial.
In this context, it is perhaps understandable that some of its future plans are more limited than those of its larger and less financially restricted competitors. Royal London Group has committed to investing a substantial sum in developing a digital proposition but there is significant ground to be made on some of its more forward- thinking competitors, who continue to invest heavily whilst already offering a well- developed digital offering. Whilst there are also some developments expected in areas such as governance reporting and member retirement communication (and the introduction of ISAs, LISAs and Corporate ISAs in the next 12-18 months) these are more in the evolutionary than revolutionary category and so are unlikely to enable competition with some of the other providers on a like-for-like basis.
Thomsons comment
Royal London is clearly doing a lot right, with NMG's researching ranking it as the most highly-thought-of-provider on our panel in all four categories assessed. However, whilst it has continued to build on recent successes in some areas, the key connectivity issues that have prevented us from placing any schemes with it in recent years remain.
We hope that future developments will bring the greater connectivity with Darwin that we are keen to establish. This would open up the possibility of our clients making better use of the all of the positives that Royal London is able to offer. However, we are unlikely to see any major developments until H2 2018 at the earliest, and so this is likely to remain a stumbling block when considering scheme placement. As a result, for now Royal London remains some way from breaking the dominance of the bigger players.
Pension Provider Report 2018 | 35 Scottish Widows Kevin Brendling Senior Pensions Technical Consultant
Background
Scottish Widows, with its iconic brand, continues to be one of the core go-to providers for corporate group pension schemes and the £80m investment in its Key Points ‘driving pensions value’ programme last year is now delivering some good results. • Scottish Widows is an The new online ‘hubs’, built for employers, members and advisers, are delivering a integral part of the higher level of user experience, allowing Scottish Widows to better compete with its platform ambitions of rivals. Whilst these are still being developed it has been good to see progression, with Lloyds Bank. input from our own delivery team integral to the beta testing phase of the Employer Hub. • Solid GPP proposition, with excellent Far from resting on its laurels, however, the Edinburgh-based provider has also joined retirement journey. the merry-go-round of mergers and acquisitions. The purchase of Zurich Corporate Savings by Lloyds Banking Group (owner of Scottish Widows) was a positive and • Consistently forward-looking move, in response to other notable mergers (e.g. Aviva and Friends strong default fund Life). performance over last 10 years. The Zurich deal has provided Scottish Widows with a skilled and established workforce in Cheltenham, along with much needed product diversification. Scottish Widows • Acquired Zurich GSIPP has now inherited a modern GSIPP (delivered by FNZ) and a Master Trust to run and Master Trust. alongside its GPP.
This of course is a highly strategic move and in time will enable Lloyds Banking Group to deliver a platform with multiple products (bank account, mortgage, GPP, GSIPP, ISA, GIA and Investment Only Platform) across all of its businesses.
It has also added £15bn in assets under management to the existing holdings of £124bn (£35bn for workplace pensions) and an additional 500,000 customers.8
In the meantime, no platform or product migration is planned for the Scottish Widows GPP (although this will likely happen at some point) and for now it’s business as usual, with Zurich products being rebranded as Scottish Widows from 3rd April and completion of the final stage (part VII transfer) due in 2019.
However, one aspect that will require attention this year is the knock-on effect of the termination of the contract between Scottish Widows (SW) and Standard Life Aberdeen (SLA), as SLA is now perceived by SW to be a direct competitor. Whilst this was to be expected, SLA had hoped to come to some arrangement with SW and will rue the loss of its biggest customer and the £109bn of assets that it stands to lose, along with a £40m impairment charge.
So, what does all this mean? Simply, it means that Scottish Widows must attract another asset manager or managers (within the next 12 months) to administer its ‘internal’ GPP funds (c. 30 funds), including the bond funds utilised within its default investment approaches. This totals around £42bn in equity assets and £47bn in fixed interest and cash assets, alongside some smaller allocations.
The 2018 IGC report notes the challenges of scale and complexity of such a transition, but given the values involved, we anticipate that a willing manager(s) will be found in good time. We understand that tender responses have already been received and that additional options remain viable.
8. https://corporate-adviser.com/annuity-market-shrinks-canada-life-buys-retirement-advantage/
36 | Pension Provider Report 2018 Scottish Widows
Proposition
Whilst one client is in the process of moving onto the GSIPP (due to specific investment requirements) our primary focus remains the Scottish Widows GPP, as this product best meets the needs of the majority of our clients.
The GPP is robust and operates on an internal platform, providing members with long-established default investment options, around 150 self-select funds and an excellent designated Retirement Hub.
The proposition is arguably less advanced than some of its rivals and members are still unable to draw their retirement income directly from their plan. Having said this, investment in the product's UI has given it a much needed face-lift and the need for a simple transfer (by phone) into a separate Retirement Account does carry some advantages, not least that it draws a line of governance responsibility between the employer’s scheme and the individual’s retirement income.
From an administrative perspective, given that we upload contributions for most of our clients, the functionality of the new Employer Hub is of particular focus for us. This is still a work-in-progress to some extent, but Scottish Widows has praised the input of our delivery team during the beta phase, which has helped to engender a better product.
It has been a similar story with the Employee Hub, which went live in early 2018 with a significant revamp, with easy-to-access information for members which benefits from a slick new ‘look and feel’. However, not all of the planned digital enhancements are yet live in this member area, with some functionality upgrades due to be delivered by Q1 2019. This means that some functionality, such as online fund-switching and pension transfer requests are currently hosted outside the new member portal, which can be confusing for policy holders who are currently looking to engage with SW’s digital offering.
The Scottish Widows self-select fund range has always looked a little light on numbers, compared to some providers that offer 200-300 funds, and has remained fairly static with regard to options. However, there have been some notable developments on this front over the last year, driven by comments made in the 2017 Independent Governance Committee (IGC) report that a refresh was overdue. As a result, the range has now increased by around 20 funds and beyond the standard equity and bond options, it now includes the underlying Smart Beta funds utilised within the Premier Portfolio range (referenced in our 2017 report) as self-select options.
This a welcome addition, given that members now have access to some more sophisticated options, including RAFI-tracking fundamental and low volatility equity index funds. Furthermore, members can also now access the Aviva Multi Strategy Target Income fund and Woodford Equity Income fund, although the availability of the latter may be short-lived given the challenges that this fund has faced.
It is unfortunate that Neil Woodford has been unable to replicate his previous success with the introduction of this fund and a shame for Scottish Widows too, given the decision to add a recognised name to its fund range. No doubt it was hoped that this addition would have bolstered self-select engagement with members that typically rely on a scheme default.
Pension Provider Report 2018 | 37 Scottish Widows
The 2018 Independent Governance Comittee (IGC) report notes improvements made against its Value for Money principles and the committee has awarded Scottish Widows an amber rating, under its RAG approach. In order to achieve a green rating, Scottish Widows is required to do more to ensure customers are made aware of short- term risks and have the ability to make tactical changes. One item of note was the committee’s acknowledgment that the default investment approach performed well over 2017, relative to its peers, although it also challenged the decision to switch an element of UK corporate bond holdings to non-UK companies. More on this later.
With regard to accessing savings in retirement, members are more than adequately supported by the Scottish Widows Retirement Hub, which we view as something of a jewel in the crown of the proposition. While all providers offer some form of online support in this phase, it is critical within our model (which focuses predominantly on the accumulation phase) that the provider delivers a high level of care to members as they make critical decisions about their retirement income.
It is therefore important then members do not feel that information is thrown at them, but rather they are guided through what can potentially be a difficult decision. In our view, Scottish Widows is especially adept at delivering this support. This is achieved via a well-designed site that provides multiple case studies and examples and then points members to the next steps to make a transaction.
Service/administration and connectivity to Darwin
As part of the 2016 Driving Pensions Value programme, Scottish Widows launched new Employer, Employee and Adviser Hubs. The Employer Hub is a key part of the process for pension schemes run through Darwin, as this facilitates scheme administration activities.
So, what is the Hub, what does it do and how has it improved upon its predecessor? Essentially it is the front end of the corporate pension proposition, delivering servicing functionality. However, it also delivers thought-leadership content, details about regulatory and legislative matters and news items.
In contrast to its predecessor (CPSP), the Hub provides immediate feedback on any errors with the uploaded data, so that issues can be instantly corrected. Under the old system, any identified errors would cause the process to fall over, leading to delays and challenging our own SLAs.
The UI of the Hub is also much more engaging and there are some new features, such as the ability to enact password resets and to create/edit/delete user logins. In addition, the browser has been upgraded and the system is now more accessible for customers with vision and cognitive impairments.
However, it is not yet the finished article and there are some frustrations, such as the one day delay between uploading new joiner files and being able to upload the contributions. Also, when members leave a scheme they have to be manually marked as a leaver, as opposed to applying a bulk upload file, and there is no automated leaver option for those on a contribution holiday.
Whilst these issues are recognised and are being addressed, the Hub was launched in 2016 and we would hope for resolution on these issues to be forthcoming sooner rather than later.
38 | Pension Provider Report 2018 Scottish Widows
With regard to connectivity with Darwin, there is a notable absence of fund change notifications. Therefore, when a member transacts these directly with Scottish Widows, the onus is upon the member to update their Darwin record. However, we are working with Scottish Widows to develop SSO access and we hope to have this in place by the end of the year, subject to the completion of a legal agreement.
Investment: default options
The default Pension Investment Approaches (PIAs) could be accused of being ‘long in the tooth,’ however, in a period of time when so many providers can only offer solutions with relatively short performance history, the 10 years for the PIAs can be viewed as a significant advantage.
The PIAs are managed on a strategic asset allocation basis and invest in a relatively simplistic collection of pension portfolios, investing predominantly in passively managed SSgA funds, but also Scottish Widows bond funds managed by Aberdeen. The approaches are subject to a formal annual governance review by the Scottish Widows Investment Strategy and Execution team, with stochastic modelling support delivered via Moody’s Analytics.
At the last review, asset allocation changes were proposed to the committee that oversees Scottish Widows’ unit-linked funds. The approved changes were to:
• Remove unit-linked gilts from portfolios three and four.
• Diversify the corporate bond allocation by reducing the sterling bond exposure in order to include 25% in global bonds.
• Hedge the new global bond allocation to Sterling.
• Introduce a small allocation to emerging market equities in portfolio four.
These changes can be attributed to the introduction of a new in-house asset allocation team that was established in 2015. The team’s purpose is to identify medium-term opportunities, alongside the predominantly long-term outlook of the PIAs, and figure 4 demonstrates the potential advantages these changes will make to the risk/return equation.
Figure 4: Impact of changes to PIAs on 25yr retirement journey9
9. Scottish widows
Pension Provider Report 2018 | 39 Scottish Widows
Interestingly, the modelling did not appear to favour a reduction in UK Equities and an increased allocation to global equities, a strategy employed by one notable rival.
The removal of index-linked gilts was justified by expectations that this asset class offers the prospect of low risk-adjusted returns in future. Furthermore, it was cited that this asset class was originally included for annuity hedging purposes, which is no longer relevant given that the default target of the PIAs changed from annuity to flexible in 2017.
The reasons behind the introduction of global bonds were not disclosed, although this is positive from a diversification perspective, an area that other providers are more committed to. There was also no explanation for the decision to hedge this element back to Sterling, which will incur additional costs.
The PIAs could be viewed as simply a low-cost passive solution, but this would be harsh and, as is often quoted, ‘passives tend to outperform active over the long-term.’ Over the last 10 years, the growth portfolio (Pension Portfolio Two) has consistently been one of the highest performing funds on our panel, which is testimony to the power of passive management in the right conditions. As Pension Portfolio Two (PP2) is c. 85% invested in equities, the broadly upward trend in these markets over the last 10 years has clearly been advantageous.
However, one further point made in the 2017 IGC report was the committee’s view that Scottish Widows needs to do more work around performance assessment of the PIAs. Whilst the committee did not clarify exactly what it meant by this statement, reading between the lines, the benchmarking of the underlying pension portfolios against ABI sector benchmarks is a little misleading, as the growth asset allocation matches or exceeds the maximum level of benchmark. This is potentially advantageous in rising equity markets, but can be equally disadvantageous in falling equity markets. This should be borne in mind when viewing the performance figures in isolation.
For those who value a rather more sophisticated approach, Scottish Widows launched its Premier Pension Portfolios on 31st December 2015 and these incorporate newer concepts, notably Smart Beta. Instead of relying on traditional indices that are based on market cap, Smart Beta is essentially an umbrella term for alternative indices. There are different ways of going about this, such as creating an index that applies equal weighting to its constituents or replicating where active managers have enjoyed success.
These new options have helped to strengthen the GPP proposition, along with other low volatility additions to the fund range. So, why are we not recommending them at present? The challenges at this point are two-fold; limited performance history and an additional 30 basis points of charges.
The former will naturally pass in time, providing that performance also stacks up. The latter is more challenging though, as an additional 30 basis points needs to convert into consistently superior performance. In addition, for a lot of schemes this will be difficult to accommodate within the 0.75% charging cap.
40 | Pension Provider Report 2018 Scottish Widows
Over the year to 28th February 2018, Premier PP2 delivered a return of 5.7% gross versus 7.8% for PP2, although the Premier version was marginally less volatile. This is hardly a ringing endorsement, but over the last two years Premier has fortuitously delivered an additional 30 basis point return, again with marginally lower volatility. This is clearly much more positive and it will be highly interesting to see how it performs over the next year. (It should also be noted that the Tactical Asset Allocation of these portfolios is currently managed by Aberdeen Asset Management).
Retirement journey
As highlighted earlier, members are especially well cared for via the Retirement Hub, which is both engaging and informative. The Hub delivers a wealth of information and very clearly direct members to their next steps. Once ready to transact, members can transfer into the Scottish Widows Retirement Account via a simple phone call to the retirement team.
The Retirement Account is a specialist retirement income product, with its own fund range and new multi-asset options have recently been added to better support members during this phase of their journey.
There are no additional charges for switching on drawdown income functionality, or for gaining access to drawdown funds, but the Retirement Account does operate on a different charging basis to the GPP. A sliding-scale basis is applied, depending on the size of the fund allocated to the account – e.g. £30,000 to £50,000 would be charged at 0.40%pa. Therefore employees with lower fund values could see an increase in their annual management charge on switching funds across from the GPP to their Retirement Account.
Development potential
Scottish Widows Limited is owned by Lloyds Banking Group (LBG) and therefore, assessing its development potential is a little more onerous. When viewed in isolation, the finances of Scottish Widows Limited could be summed up as the good, the bad and the ugly and I’ll explain why.
The provider’s market position, scale and a range of low-risk products would definitely be regarded as good. It benefits from a strong franchise and brand, along with a diversified business profile, and Moody’s views the connection to the wider LBG as beneficial.
However, it’s notable in Moody’s latest credit opinion report (March 2018) that the word ‘good’ is frequently applied by Moody’s, but not ‘excellent,’ and there are some aspects for concern (the ‘bad’). Most conspicuous is the poor return on capital figures, with just 1.6% reported for 2016. This marks a deteriorating trend since 2012 and is reflective of the low interest environment, aggressive competition in the life and pensions market and decline in bancassurance sales, which typically deliver higher margins. Clearly this position will not generate cash for investment in its products.
In the background there continues to be uncertainty about the value of the final settlement for the ongoing litigation concerning sales made through independent intermediaries in Germany (‘the ugly’). Scottish Widows has put aside £639m for this matter, but there is no telling whether this is a sufficient level.
Pension Provider Report 2018 | 41 Scottish Widows
In addition, Scottish Widows Limited continues to sustain a lower solvency ratio (144%) than many of its peers, although Moody’s notes that this is offset to some extent by its ‘well-defined risk appetite and risk management framework.’
Clearly there is work for the provider to do and the good news is that action is already underway. The two major strands of this strategy have been entry into the bulk annuity business in 2015 (which has since generated £2.5bn in premiums) and re-entry into the IFA protection market. The combined impact of these actions has been an increase of 27% on overall premium levels.
Scottish Widows will hope that it can continue to grow in these areas and in the meantime, new business sales in life and pension increased by 12% in 2017. In addition, with the introduction of auto-enrolment increases, the corporate pension proposition will remain an important part of the earnings equation and Moody’s believes the Zurich deal has further strengthened its hand.
So, Scottish Widows appears to be on track to increase its profitability, but this will take some time to really make an impact. Meanwhile, the plans of LBG to develop a platform that will span all of its businesses, is good news for Scottish Widows and the Zurich deal is a strategic part of the puzzle. Given that the Group has already invested in the digital upgrades programme (and has supplied its own engineers to facilitate the Zurich integration) it’s clearly committed to the cause. It doesn’t hurt to have a major high street bank in your corner.
One recent example of the progression of the digital piece was the inclusion of Thomsons’ schemes in a four week pilot, which enabled scheme members who use Bank of Scotland (BoS) internet banking to view their Scottish Widows GPP information when logged into their bank account.
This is the holy grail for platform developers – the ability to deliver banking, mortgages, pensions and additional financial products all in one place. The Lloyds/ Scottish Widows relationship makes this goal a potential reality!
Thomsons comment
Scottish Widows appears to have the backing of LBG (which since May 2017 is no longer under public ownership and passed the Bank of England’s stress tests in November 2017) and with the acquisition of Zurich Corporate Savings, it can now better compete with its rivals, with regard to product selection.
Indeed the banking group is setting big targets for financial planning and retirement and according to new distribution director, Jackie Leiper, Lloyds is looking to add one million new customers and £50bn of assets by 2020.10
Scottish Widows is an integral part of these plans and, in a workplace context, continues to set the standard for engaging member communications. In addition, its brand is a powerful marketing tool in an aggressive and shrinking provider market and at a time when its rivals have much integration work to overcome, the Scottish Widows GPP is apparently set for no such disruption (at least in the short-term).
10. https://www.moneymarketing.co.uk/issues/8-march-2018/profile-scottish-widows-boss-lloyds-commitment-business/
42 | Pension Provider Report 2018 Standard Life Kevin Brendling Senior Pensions Technical Consultant
Background
Standard Life is another UK insurer seeking to redefine itself. In this case, the strategy is to transition from insurer to ‘fee-based, capital light investment company’ and naturally this drives a thirst for assets. Now called Standard Life Aberdeen (SLA), the Key Points Edinburgh-based provider bought Aberdeen Asset Management for £3.8bn in March 2017 and instantly became the second largest asset manager in the UK with £660bn • Transitioning from in AUM. insurer to asset manager. Officially, the two businesses were said to be complementary, and this is true with regard to size, a preference for certain asset classes and an inclination for active fund • Outsourcing management (fig 5). However, they also needed each other to some extent, with both administrative functions sustaining consistent outflows. of workplace pensions to Phoenix (staff move At a time when investors were losing confidence in emerging markets, Aberdeen was with products). heavily committed to the region. As a result, it registered £32.8bn in outflows in the year to September 2016. • Strong Group Pension proposition, with fully Standard Life was also having issues, with investors losing confidence in its absolute online retirement returns fund Global Absolute Returns Strategies (GARS), which suffered a ‘blip’ in journey. 2016. Once a £40bn fund, this level fell to £27bn in 2016 and the outflows have continued, with GARS now valued at £21.1bn. • The challenge is to communicate the value Investor confidence was initially rocked when a poor strategy call caused the fund it offers. to miss the end of the bond rally at that time. The fund then came under greater scrutiny and due to the complexity of the positions that it takes, investors became uncomfortable about the strategy.
Such funds were birthed in response to the global financial crisis and were designed to perform well in difficult market conditions, but these conditions are yet to materialise (over a sustained period). As a result, investors have been able to achieve greater returns, via predominantly low-cost equity trackers, at a time when equity volatility has dipped below long-term trends. Somewhat ironically, GARS has suffered from good market conditions.
The marriage of Standard Life and Aberdeen was then, to some extent, one of convenience. The question now is has it worked? Have they steadied the ship?
In answer to that question, it has not been plain sailing since the completion of the part VII transfer in August 2017. Unsettled investors, suspicious of the merger, voted with their feet and the UK’s largest listed fund house headlined as the worst selling fund house in the world in September 2017.7 Not the kind of record they were looking for!
Pension Provider Report 2018 | 43 Standard Life
Whilst on the ropes, the next upper-cut landed in February this year, when Scottish Widows (which incidentally might have bought Standard Life at one point) gave a 12 month notice period of termination on its contract with Aberdeen. This equates to a For members of workplace loss of £109bn in assets for SLA, albeit that in revenue terms it only represents a 5% pensions everything will look loss. In addition, there is a £40m impairment charge to pay and SLA shares dropped the same and it should be as low as -10% on this news. business as normal for the short to mid-term. However, in February the next phase of the transition was unveiled with the announcement that the Standard Life insurance arm is to be sold to Phoenix Life, a specialist closed-book provider and FTSE 250 company.
Importantly, the operational headquarters (for both staff and buildings) will remain in Edinburgh and the Phoenix headcount will increase by 57%. This is good news for members, from a consistency perspective, as the majority of knowledge and skills will hopefully be retained.
Given the objectives of SLA, it makes sense to offload the administrative functions to Phoenix Life and SLA will continue to design the products and retain responsibility for member experience. The SLA brand will also remain in place and SLA will of course manage the investments. For members of workplace pensions everything will look the same and it should be business as normal for the short to mid-term.
The deal is set to go before shareholders and the FCA in Q3 this year. In the meantime, shareholders will be encouraged by the news that SLA will also now be able to pitch for business within the Phoenix Group’s £26bn of assets under management!
Standard Life has confirmed that the proposed ‘sale’ of Standard Life Assurance Limited (SLAL) to the Phoenix Group (£2.28bn in cash and 19.99% shareholding in Phoenix) is not a part VII transfer (the transfer of one legal entity to another); instead, the proposal is that shares in SLAL will be sold by Standard Life Aberdeen plc to Phoenix Group, where the SLAL entity will remain and not be absorbed into Phoenix Life Limited. All of SLAL’s policyholders will continue to hold insurance policies with SLAL following the sale.
Figure 5: Asset Similarities – Aberdeen and Standard Life11
11. https://www.ft.com/content/71afa13e-0241-11e7-aa5b-6bb07f5c8e12
44 | Pension Provider Report 2018 Standard Life
Proposition
The two core group pension products are the Group Flexible Retirement Plan (GFRP), which is similar to a GPP, and Master Trust. As per our stance on other providers offering multiple group pension products, there is little discernible difference between the two and no strong cause to choose one over the other, unless a specific justification or need is presented.
The GFRP has been our go-to product in recent years, because of its flexibility to switch on additional fund ranges when required. Whilst the majority of contract-based group schemes are heavily reliant upon the default fund, there will always be some who require wider investment options and this is a useful feature, although access does come with additional basis points added to the member’s charge (which is much better than increasing charges for every member).
Members also gain access to a suite of risk-rated default options, which target different retirement outcomes. The sheer volume of these options (100 lifestyles) under the standard fund range is immense and should certainly cover a wide range of needs. However, whilst this may be viewed as an advantage for advisers, it can muddy the waters for members wishing to self-select.
One of the key strengths of the GFRP is the retirement journey. Whilst most providers currently require members to complete paperwork, or to pick up the phone to set up income withdrawal, SLA enables a full online experience, which other panel providers are currently working towards.
The insurer-dominated group pension market has often lagged behind other industries in embracing technology, but surely more should be able to offer a full online journey now. SLA has been doing this for some time and while a transfer to the Active Money Personal Pension (AMPP) plan is required within the process, this again is done online.
One of the key challenges for SLA in recent years has revolved around how to deliver a premium-level product within a market that is broadly determined to race to the bottom. This does present a genuine conundrum and whilst there is much talk about seeking value as opposed to the lowest charge, the additional difficulty when distributing through third party software (e.g. Darwin) is that the provider’s product essentially becomes an asset management function in the accumulation phase of a member’s saving journey. The product is therefore not able to demonstrate all of the value that it is charging additional basis points for.
Aside from the point that this aggressive pricing model impacts profitability, it is also one factor helping to deliver a smaller provider market and there is an inherent danger of creating an unsustainable position. There are rumours that the margins on new pension schemes are now so thin that it could take up to 10 years for the provider to realise a profit. This clearly carries a risk if providers cannot retain a scheme for at least this period of time.
For this reason SLA has chosen to refine its position and is seeking larger, ‘quality’ schemes that deliver relatively high annual premium levels. Unfortunately this means that it is no longer really in the market for mid-sized schemes, unless the key metrics are especially attractive. However, we will continue to liaise with SLA for terms.
Pension Provider Report 2018 | 45 Standard Life
Service/administration and connectivity to Darwin
With regard to service, the core tasks are generally performed adequately. However, there are some grumbles with regard to the distribution of governance data, which SLA are aware of and working to address.
Timescales for the receipt of governance data vary depending on what is required. Whilst some data can be downloaded within 24 hours, the scheme level PDF report can take several weeks to arrive. Also, the format of the data download is troublesome, as it does not include national insurance numbers. However, the SLA roadmap includes plans to upgrade the existing Group Pension Zone. At present, the system is not automated, which is restricting the level of data that can be provided. The new Workplace Hub should improve data analytics and deliver higher quality output about member activity.
A further niggle is that when issues are raised, the helpdesk often cannot deal with them. There is a tendency issues to disappear into the ether via back-office teams. While extended help desk-hours and new voice recognition software should be beneficial for members, more needs to done to support intermediaries.
As for connectivity to Darwin, Standard Life delivers a high level connection, but there is a notable absence of fund change notifications. Therefore, when a member transacts these directly with the provider, the onus is upon the member to update their Darwin record. However, Standard Life does possess some SSO functionality (which is currently integrated on a case-by-case basis), albeit that this process requires monthly administration.
From a wider market perspective, NMG reports high scores for online technology and product and overall SLA is viewed as a mid-table provider. Whilst this may not sound especially exciting, it should also be noted that SLA did not score poorly in any aspect and therefore it would be fair to say it has a strong overall proposition.
Investment: default options
There is no doubt that when it comes to delivering default options, SLA offers an impressive range of options. This includes traditional variants that have been upgraded to meet pension freedom requirements, along with newer Strategic Lifestyle options that provide a choice of risk-ratings, retirement options and active or passive variants.
As with GARS, SLA has been unfortunate to some extent in building the Strategic Lifestyles with a clear focus on volatility. The perception that opt-out levels under auto-enrolment would be much higher unless low volatility solutions were ushered in as defaults, did not come to pass. Instead a period of remarkably low volatility in equities ensued and providers who did little to address their passively managed, heavily equity-based, offerings were able to deliver much higher returns.
To make matters worse, the Strategic Lifestyles also invest in GARS and were not spared. Whilst Active Plus III (the default growth fund) has consistently delivered lower volatility than its peers, it has also delivered significantly lower returns in the process.
46 | Pension Provider Report 2018 Standard Life
It is therefore a shame that SLA has perhaps not gained the recognition it deserves for seeking to deliver a higher-quality solution. However, this view should be tempered with some additional factors, the first being the question of whether it is really in So, where are we now? In members’ best interests to seek to reduce volatility in the early years of a lifestyle principle the funds do have strategy. By the same token, fears over auto-enrolment opt-out rates would appear some merits and as global to have been overplayed, given that market commentators predicted rates of around reflation takes hold and 30%, which transpired to be less than half this level. a form of normalisation returns, there will perhaps Where a membership is identified as being especially risk-adverse, a lower volatility be greater scrutiny upon approach is justifiable. But where this is not the case and members have a long the risk element of the risk/ investment term ahead, volatility can be very beneficial when regular contributions are reward equation. Should maintained. In principle, higher returns could be delivered by initially seeking a higher this scenario materialise, level of growth, and volatility can then be reduced via lifestyling as members draw these funds could still take nearer to their selected retirement age. the opportunity to shine and prove their doubters The second pause for thought is the way in which strategy and performance have been wrong. However, greater communicated. The underlying investment in GARS (a fund that most members will communication about the probably not understand) and the failure to provide a more transparent benchmark for fund’s aims and strategy the Active Plus funds did not help the cause. would go a long way to restoring confidence. The benchmark is a composite (as is often the case these days), with GARS being represented by cash. Given that GARS targets a higher return than this, this lowers the bar for returns. Greater transparency concerning the composition of the benchmark would also help to provide members and advisers with more context about what the fund is aiming to achieve and whether it is on track.
So, where are we now? In principle the funds do have some merits and as global reflation takes hold and a form of normalisation returns, there will perhaps be greater scrutiny upon the risk element of the risk/reward equation. Should this scenario materialise, these funds could still take the opportunity to shine and prove their doubters wrong. However, greater communication about the fund’s aims and strategy would go a long way to restoring confidence.
Retirement journey
Standard Life delivers a great retirement journey for members and, depending on specific member needs, this could be ranked as the number one approach on our panel. The journey from decision to access savings to receiving the monies is fully online (including appropriate support) and the transfer into a specialist retirement product is also transacted online. Furthermore, there is the additional option to make use of Active Retirement, an investment strategy designed specifically to facilitate income withdrawal in retirement.
Active Money Personal Pension (AMPP) is in essence a retirement account that facilitates the withdrawal of income – either regular, ad-hoc or full encashment. Often in this scenario members will be presented with a different charging structure, typically a sliding-scale approach based on the size of fund moved into the plan.
However, in this instance members retain their scheme AMC as long as they only access their tax-free cash, which is typically the initial action that members transact. When other income is taken, discounts apply to the product charge (0.5% to 2.0% depending on the funds selected), based on the size of fund invested.
Pension Provider Report 2018 | 47 Standard Life
From an employer perspective, this also transitions members out of the scheme and into their own personal arrangement. This can be useful in reducing the governance burden for employers, but equally members may not move all of their capital over in one go.
Talking of governance, it should also be noted that Standard Life will query any decision to transfer into AMPP and take income, when there is a clear question mark over the appropriateness of this action. For example, should a member instruct a £100k withdrawal, this would flag a warning and the provider would contact the member to ensure they understand the tax consequences of such an action.
In addition, the AMPP provides specific retirement income investment options to choose from. Members are therefore presented with a decision on how to invest for their income, rather than relying upon a scheme default fund that may not meet their specific needs. Members gain access to a range of 300 funds and have the option to upgrade to additional options (direct investment, commercial property, discretionary investment managers) via the SIPP option.
Standard Life also offers the option to invest in Active Retirement, which aims to better balance the needs of investment growth and income withdrawal. It works by splitting the plan into three risk-rated pots and smartly draws from the lowest risk pot first. This helps to deliver a more stable income and also enables the higher risk pot more time to grow.
Development potential
Within the family tree of Standard Life Aberdeen plc (SLA) is Standard Life Assurance Limited (SLAL), which owns the UK corporate pensions business. Given the significant transformation taking place within the plc, it is important to analyse both entities.
SLA has a strong position within the asset management industry and benefits from a large product range and geographical diversity. It also has a strong brand name, solid distribution channels and the potential to benefit from distribution synergies.
However, it must get the integration right and stem the outflows that we highlighted earlier. SLA has put aside £320m for integration costs and Moody’s March report notes that ‘margins over the next couple of years will likely be supported by cost savings.’
The strategic partnership with Phoenix will seek to:
• Retain investment management access to the assets it is selling under administration.
• Continue to manage £48bn of assets on behalf of Phoenix Group.
• Potentially gain access to additional investment management mandates.
Under the proposed arrangement, the policies of workplace pension members will remain under the ownership of SLAL, which in turn will be owned by Phoenix (but not absorbed into Phoenix). As a result of this distinction, the financial strength rating of SLAL (A1 negative) remains the most significant for members.
48 | Pension Provider Report 2018 Standard Life
Moody’s expectation is that the credit profile of SLAL will be weaker as a result of the proposed deal. Specifically, SLAL will lose the benefit of the UK retail platform and advice business, which will be carved-out ahead of sale. This leaves a closed annuity book and the corporate pensions business. Given that the profitability of the former will naturally decrease over time, coupled with the view that margins are tight for corporate pensions, Moody’s foresees reduced profitability for this entity and has applied a negative outlook to its rating.
However, with regard to development potential, we study financial strength ratings for two key purposes. The first is to assess whether a provider is likely to be swallowed up by a rival, which is now less likely (although not impossible). The second is to assess the level of potential for cash generation, which controls a provider’s roadmap for proposition development.
In this instance the rating of Standard Life Aberdeen plc comes into play, because under the proposed deal it will retain responsibility for the design of the products and the roadmap for member experience. Therefore, it holds the purse strings for development.
Moody’s notes that the plc has a strong liquidity profile, supported by £841m of cash generation and £1.2bn of liquid resources. It also notes the potential capital release for the plc, following the sale of SLAL. Furthermore, the plc will continue to earn from the fund charges on the assets held under SLAL, may gain access to new investment mandates and, if Phoenix is profitable, will also earn via its 20% share holding.
Whilst we have sought to be obtain a figure for digital development spend this year (re the pension products) it is understandable that this figure is not forthcoming at present. However, the look and feel of the Standard Life portal has continued to develop and it already has very strong and established group pension products, with a fully online journey from accumulation to withdrawals in retirement. We continue to view Standard Life as one of the leaders in this market.
Thomsons comment
Within the provider market, the group pension products will retain the Standard Life name and a place on our panel continues to be warranted. However, Standard Life’s biggest challenge remains one of winning business. For an already competitively- priced scheme, it must demonstrate that it can deliver superior value to others in the market. Even then, the stigma attached to presenting an increase to member’s charges makes it very difficult for clients to entertain this prospect.
The charging cap has not helped with this, let alone past IGC reports which have constantly spoken about ‘value for money’ yet sometimes lack clarity on what 'value' is. There is so much noise about charges that it has in some ways become a barrier to delivering value.
If Standard Life’s assertion that other providers have overstretched themselves to win business is true, then in time it will find itself in a smaller market, which could prove beneficial if they are playing the long-game. However, as an asset manager it will need to retain and grow its AUM in the shorter-term and from a group pensions perspective, it may need to pull a rabbit from its hat!
Pension Provider Report 2018 | 49 Appendices
Appendix 1: NMG – Broad Market Opinion (Adviser Sentiment)12
Appendix 2: High-level statistics
Scottish Provider survey Aegon Aviva L&G Royal London Standard Life Widows Group schemes 2,116 23,920 3,300 20,100 27,580 37,000 Members 634,790 3,288,930 2,700,000 991,000 2,125,000 1,850,000 (total) % of group 18% (pre- pensions Not disclosed 21% 16% 7% 8% Zurich) market £58bn + n/a (mutual Market cap £19.7bn £16.25bn £51.8bn £10.8bn €11.2bn company) Pension AUM £16.1bn £56.9bn £28.6bn £30.1bn £35.8bn £39bn £22,000/ Approximate £50,000 £16,315 £10,000 £30,300 £44,000 £20,000 av. fund size (dependent upon product)
12. NMG Consulting
50 | Pension Provider Report 2018 Appendix 2: High-level statistics
Moody’s Aviva Life & Scottish Standard Life Aegon N.V LGIM Royal London (March 2018) Pensions Widows Aberdeen Rating A3 Aa3 A3 A2 A2 A3 Outlook Stable Stable Stable Stable Stable Stable Total assets £m £576,000 €425,935 £149,272 £841,000 £90,631 £143,669 (2016) (2017) Total revenue €50,214 £9,139 £394 £11,489 £24,413 £2,928 (2017) £m (2016)
Products Scottish Aegon Aviva L&G Royal London Standard Life Offered Widows GPP GSIPP DC Trust Master Trust
Lifetime ISA Due Q1, 2019 Corporate Due Q1, 2019 NISA GIA
Pension Provider Report 2018 | 51 Appendix 3: Thomsons Online Benefits service statistics
LGIM Aviva Designer Royal London Scottish Standard Life Aegon GPP WorkSave GPP GPP Widows GPP GPP GPP Room for Room for New joiner process No Issues No Issues No Issues No Issues improvement improvement Contributions Issues with Room for process (applied No Issues No Issues No Issues No Issues application improvement on time) AE contributions Enforced 1 No Issues No Issues No Issues No Issues No Issues process month deferral Supply of Room for Tailored - very governance data - Good Good Good Good improvement good quality Supply of governance data Over 24hrs 24hrs Over 24hrs - 24hrs 24hrs (bulk download) - timescales Supply of governance data 10-15 w. days 10 w. days 10 w. days - 10w. days Several weeks (scheme level) - timescales Admin support (escalation with Room for Room for Very strong Good Good Strong high level technical improvement improvement backing) Improved in Broker support Very strong Good Good Very strong Good recent months Issuance of benefit A couple of No Issues No Issues No Issues No Issues No Issues statements issues reported
Communication Room for Very Strong Good Good Very Strong Strong (general) improvement
Online bulk Yes Yes Yes - Yes Yes transfer process Yes (scheme- Yes (scheme- by-scheme by-scheme (Transfers out) No Yes - No agreement agreement required) required)
52 | Pension Provider Report 2018 Appendix 4: Darwin fund range
Aegon Aviva Designer Royal London Scottish Standard Life L&G Worksave GPP/ ARC GPP GPP Widows GPP GFRP Aegon Aviva Future Royal London Scottish Standard Life (BlackRock) Focus II L&G Multi- Balanced Widows Default fund Active Plus III Default Equity Drawdown Asset Fund Lifestyle Balanced PIA Universal SLP & Bond Fund Lifestage (Drawdown) (Drawdown) Number of self- 250 230 115 160 150 290 select funds Number of 27 17 48 TBC 18 78 packaged lifestyles Number of specific low carbon/ethical/ 4 7 4 TBC 1 4 ESG/sustainable funds
Appendix 5: Default fund performance13
Please note that fund values can go down as well as up and past performance is no guarantee of future returns.
13. Morningstar Direct
Pension Provider Report 2018 | 53 Appendix 6: Access to savings
Scottish Aegon Aviva L&G Royal London Standard Life Widows No, transfer Access direct from Yes, but very No, transfer to No, transfer to Yes Yes to Retirement plan? limited Portfolio AMPP. Account GPP: Paperwork, Withdrawal Paperwork but soon to be Paperwork Paperwork Telephone Online process online ARC: Online Flexi-access ARC only Yes Yes Yes Yes Yes drawdown (FAD)? Regular income 6 payments ARC only Yes Yes Yes Yes FAD payments p.a. UFPLS? ARC only Yes Yes Yes Yes Yes Full encashment? Yes Yes Yes Yes Yes Yes One free 6 UFPLS or withdrawal, £199 charge to Max 2 UFPLS Restrictions 6 drawdown then £20 access income None None under GPP payments charge each release individual
Appendix 7: Quick Comparison
Positives Negatives Star rating • Scale of ARC and Compass propositions. • The GPP – systems and service do • ARC has potential, if it can meet not measure up to peers. Aegon the needs of intermediaries. • Contribution and fund rebate • RetireReady- great tool for those allocation issues. wishing to establish their retirement expectations. • Significant market share and scale. • Profitable, with growing platform. Group business volumes up 25%. • Digital leader in the group pensions Aviva market- embracing technology and - data analytics to deliver superior member experience. • Excellent service levels – systems, processes, people and culture.
54 | Pension Provider Report 2018 • Largest asset manager in the UK (£983bn AUM), with significant scale. • It would be good to see more digital • Offers competitive terms. Legal & General development and a more engaging • Leader in default fund design and retirement journey. low carbon. • Solid proposition. • Mutual structure limits its ability to raise capital and invest in its proposition. This is perceived as a • Profit Share – an innovative means growing disadvantage as its peers to reduce member charges. increase their scale and AUM. Royal London • Very strong defaut fund design, • No SSO or Contact Enquiries using governed portfolios. means no connectivity with Darwin. • Investment in connectivity capabilities would make RL a much stronger proposition. • The Driving Pensions Values programme has enabled Scottish Widows to catch up to the competition. • Notification of member • Its parent company, Lloyds Banking fund changes would improve Group, is in a stronger position and Scottish Widows connectivity. no longer under public ownership. • The Employer and Employee Hubs • The platform plans of Lloyds bode need to be finalised. well for Scottish Widows- bringing together banking, mortgages, pensions and other financial products. • The GFRP is both a reliable and • The greatest challenge for SL is flexible product, offering members to prove the ‘premium’ value of its a significant range of investment proposition. options. • The stigma of underwhelming • Members are also able to fully investment performance remains transact online when wanting to Standard Life an issue, although this narrative is access their savings. overly-focussed on returns alone. • Members also gain access to Active • However, a period of more volatile Retirement, which delivers an equity markets could enable the intelligent investment approach for risk-adjusted approach of Active drawing income. Plus III to demonstrate its value.
Pension Provider Report 2018 | 55 About Thomsons Online Benefits
Founded in 2000, Thomsons Online Benefits is a SaaS provider of global employee benefits and employee Neil Atkinson engagement software. It is a wholly owned subsidiary of Head of Proposition Mercer, a global consulting leader in advancing health, [email protected] wealth and career. Mercer and Thomsons combine world- class consulting and broking with innovative technology, driving transformation in the way that benefits are designed, communicated and administered. Thomsons’ award-winning platform, Darwin™, is the global Kevin Brendling market leader for automated employee benefits administration. Senior Pensions Technical Consultant With over 2 million lives on Darwin™, it connects employees [email protected] with their benefits in over 90 countries and 30 languages. By using the right combination of editions, Darwin™ provides a tailored solution to meet a variety of employee benefit and reward needs, including employee engagement, managing risk, controlling costs and streamlining benefits administration. Michael Probert Senior Pensions Technical Consultant [email protected]
56 | Pension Provider Report 2018 Acknowledgments
Our research for this review was collected over a period of time, both from direct questioning of the providers in the market, to scrutinising their literature, online experience, office visits and general day-to-day working practice. We enlisted the assistance of analytical specialists in different fields and sought input from key stakeholders within our business, with the aim of providing a fair and rounded view of each proposition.
We therefore thank the following for their contributions:
• Mercer
• The corporate pension providers reviewed in this report
• NMG Consulting
• Moody’s Investor Service
• Morningstar Direct
Pension Provider Report 2018 | 57 Thomsons Online Benefits Pension Provider Report 2018
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