Welcome to the 2020 Independent Governance Committee (IGC) Annual Report, for members of Aviva’s workplace schemes. This report is based on 2019 results for all investment matters but since the end of the year conditions have deteriorated.
As I write, the Coronavirus pandemic has become a global crisis. Aviva has taken significant steps to maintain customer services and facilities through this period which we have discussed with them. We are grateful for their efforts on your behalf. We are assured that all services will continue, hopefully with only minor reductions in speed of service at certain times. The administration teams are prioritising the most urgent items of work. The actions taken to enable all staff to work effectively from home were swift and comprehensive and have worked very well so far.
The news that the Coronavirus is spreading across more and more countries globally has led to expectations that economic activity will slow sharply. This has caused significant falls in stock markets across the world, which may have negatively impacted the current value of your pension or other investments.
We cannot emphasise enough the importance of taking a long-term view with investments and saving for retirement. Markets suffered significant losses in 2007 and 2008 but they subsequently recovered strongly. If, for whatever reason, you are considering any investment change then we would encourage you to seek financial advice at this time of high volatility.
The main investment funds, in which you may be automatically invested through your pension scheme, are designed to try and smooth out the sharper ups and downs in the stock markets. This is achieved by investing your money in a range of investments, so they are not solely reliant on the performance of one investment market. For those who are close to retirement the main funds reduce the amount invested in company shares and invest in other types of investments instead like bonds.
For those who are further away from retirement, you may see a sharper fall in the value of your pension pot. This is because the funds are more heavily invested in the stock market through company shares. We understand that this may be unsettling but would urge you to remember that pensions are long-term savings and we hope that investment markets will recover in time, at least in part, as they have done previously.
We acknowledge that this crisis is difficult for everyone, including pension providers. We have raised significant challenges with Aviva this year which will require an investment both of capital and resource. The longer the current situation persists, the less likely it will be that they will be able to deliver on a number of commitments. We will take that into account in our next report.
In these very troubling times, many of you may experience the loss of loved ones, friends and colleagues. We offer any of you who find yourselves in that position our deepest and heartfelt sympathies.
There are over three and a half million Aviva workplace pension members in both new and old pension contracts and many different contract types. Our IGC remit is to assess Value for Money (VfM) for all workplace pension members, both for those still paying contributions and those people who have left the particular employment related to their Aviva scheme.
There are four other members of the IGC in addition to me and our details are near the end of this report. I am grateful for their invaluable support throughout the year. All the IGC members are independent of Aviva. We do, however, liaise closely with various Aviva personnel, and we are grateful for their support.
Our task as an IGC is to assess VfM for all workplace pension members. To do this, we have defined what constitutes VfM and consider all the information provided to us to reach our conclusions. There will be additional areas for us to report on next year including policies relating to Environmental, Social and Governance (“ESG”) aspects of investing and new “Investment Pathway” funds for members drawing their benefits. We already look at ESG in some detail as outlined in this report, but future requirements will increase this work. We welcome these developments.
We have evolved our assessment considerably this year. We provide a summary of different aspects of VfM in the next section of this report highlighting some of the key questions that we consider. We have summarised areas where we think improvement is needed, as well as the positive points which score well. Where our view varies between more modern (“currently marketed”) products and older (“legacy”) products we have stated these differences.
We challenge Aviva where needed. We are also able to discuss matters with Aviva’s Board and, if necessary, Aviva’s regulator, the Financial Conduct Authority (FCA). Prior to issuing this report, the findings were discussed with Aviva’s Board.
Our overall assessment is that good value is being provided across policies, albeit with specific suggested areas of improvement highlighted. Older products have more areas for improvement than newer products, but significant improvements have been made in the last 12 months.
We believe Aviva is working on most of these challenges as quickly as is practical, but we will continue to challenge them to do more. If you are a member of an older workplace pension policy, then be assured that the IGC regards your VfM to be just as important as it is for new members in modern products.
There have been changes to the two main default funds (“My Future” and “My Future Focus”) over the last year which provide a greater diversification of assets. In both cases we regard the changes as positive. We were pleased that the changes to both funds were implemented successfully.
ESG is an area of both current change and expected significant future evolution, and Aviva has been at the forefront of this within the pensions industry. For My Future Focus, a significant embedding of ESG considerations has been introduced which we regard as important. For My Future, the embedding of ESG is not as significant so far. We describe these details in the investment and ESG sections of our report. In future, we will be looking for greater development of reporting on ESG matters to enable the ESG to be assessed in far greater detail. Our investment section outlines our view that the My Future Focus fund is the more attractive investment solution of the two main defaults taking all matters into consideration – but My Future continues to offer good value.
The information on transaction costs from investment managers has improved further. This relates to the cost of their investment transactions, which are part of the costs you pay to achieve the investment return on your funds.
A program has been completed to update investment funds for the small number of members with funds which previously did not give them access to a full range of pension freedoms.
We set out the progress in a specific section of the report.
We are pleased with the completion of two specific projects outlined last year. These were:
We are also pleased with a recent decision to remove higher charging units which applied in relation to around 30,000 members under age 55 which we hope to see implemented soon.
In addition, we are pleased with the continuation of the programme to remove commission and the commencement of the Customer Transfer Programme.
These are all described in the report. We are looking particularly for the acceleration of the Customer Transfer Programme to move members from older products into modern products.
There is always much for pension providers to do – even those at the forefront of workplace pensions like Aviva.
Particular areas of priority for the coming year include:
All the matters I have noted are covered in further sections of this report. At the end of the report we set out some of the priority areas that we will be looking for progress on in 2020. We will monitor Aviva’s progress to improve VfM and outcomes for you, and challenge Aviva in areas where we feel this is appropriate and necessary.
The IGC welcomes many developments from Aviva to communicate and engage with members.
I encourage you to read pension statements and communications and to go on-line and register to use MyAviva. The portal has many useful features and information.
Click here to visit MyAviva
You should also use the customer telephone services if you have questions. It is good to think about and plan your future pension as much as possible, and Aviva is trying to help you to do this. We are encouraged by many developments in engagement but there is much more to do.
Aviva has three and a half million workplace pension customers and although it is impossible for us to speak individually with all of you, we are interested in your views and concerns. Please use the IGC’s mailbox, IGC@aviva.com to tell us what you think about the pension you have with Aviva, whether you think you are getting value for money, your experience of interaction with Aviva or simply to talk to us about the work we do. We are here to act in your interests and welcome any feedback you have. Any feedback will be treated in the strictest confidence.
We wish you a safe and healthy year.
Colin Richardson Independent Chair – Aviva IGC
