Aviva Independent Governance Committee (IGC) 2020
Annual Report 2020
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 value for money (VfM) assessment
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.
Developments in investments
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.
Progress on 2019 priorities
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:
- Changing the underlying investments in funds for around 84,000 members in older products who had default funds still targeting annuities at retirement. A further 150,000 members in modern products have been moved away from annuity targeting default funds.
- Completion of changes to the two main default funds
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:
- Acceleration of the Customer Transfer Programme
- Further review of ESG aspects of “My Future” default funds
- Further developments of ESG measurements, including the measurement of the climate change global warming potential of existing default funds and potential future ESG investment techniques
- The significantly improved online functionality currently in development to be delivered to all members
- Further member research and measurement of member engagement
- Further development of new communications and member tools
- Successful introduction of investment pathways
- Successful implementation of charge disclosure requirements due for 2021
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.
Your engagement and feedback
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.
Independent Chair – Aviva IGC
Our Value for
Our Value for Money Assessment
The role of your IGC is to assess the Value for Money provided by Aviva to you, as workplace pension plan members.
Where we feel there are areas of improvement needed, we will challenge Aviva and ask them to make changes. Should we not be satisfied with their response to our challenge, we can escalate our concerns to Aviva’s Board, and, if appropriate, we can raise our concerns with the FCA.
What we assess
We have expanded our assessment this year and now report on the following areas. For each area, we ask ourselves a key question, and ask Aviva to provide evidence to answer that question:
- Product costs and charges – what you pay for your workplace pension and whether these charges are clear, fair and in line with the market;
- Service and administration – the quality of service Aviva provides to you and your employer;
- Communications – how Aviva communicates with you and whether those communications provide enough support and help throughout the time you invest with Aviva;
- Engagement – how Aviva engages with you and how effectively this works;
- Product design and suitability – whether the workplace pension product you have is designed to deliver the best outcome for you in retirement;
- Investment choices and returns – the funds available to you and how they perform against their objectives;
- Environmental, Social and Governance (ESG) issues – we look here not only at what Aviva do as a firm with regard to their corporate and social responsibility, but also how they incorporate these considerations in the investments offered to you.
We also look at Aviva’s financial strength and sustainability, and the security of both your personal data and your money.
Currently marketed and
In previous years we have assessed the questions in each category separately and provided a rating for each. We no longer feel this to be appropriate as the vast majority of you are in currently marketed products. Instead, we have chosen to provide an overall view and explain where we believe improvements can be made or where more work from Aviva is required.
Our assessment of each area
Product costs and charges
Are Aviva’s charges fair and transparent and is there a distinction between currently marketed and non-marketed products?
The vast majority of you benefit from regulations which require Aviva to cap your charges at a maximum of 0.75% per annum (or 75p for each £100 you have invested). In reality, most of you pay much less than this. Over two million of you pay less than 0.5%.
For those of you who don’t benefit from the charge cap, then by definition your charges will be higher. Aviva has taken some good steps to reduce charges for members in older, non-marketed products and following our continued challenge over the last 12 months, they have finally agreed to remove higher charging units for members aged under 55. This change has already been implemented for members over 55. This has come at a significant cost to Aviva and demonstrates their commitment to address the challenges we have raised. By removing these higher charging units, it also removes the exit charges associated with them which was our other area of challenge.
New rules to require providers to disclose charges will come into effect next year which will allow you to see all the charges relating to your pension.
Following our successful challenge, we want to see the changes made as soon as possible so that members aged under 55 see a benefit from the reduction in charges as early as possible. We have asked Aviva to undertake these changes as soon as is reasonably possible.
We would like to see an acceleration in the Customer Transfer Programme of members in older contracts into more modern contracts. This transfer will enable those members to access some facilities not available in older contracts and in some cases to also benefit from lower charges.
Service and administration
Key Question: Does Aviva provide good service?
We’re happy that you are receiving a good service. Aviva has improved in all areas relating to both the speed and quality of service they provide to you. This is backed up by the feedback you have given them.
While there is little to be concerned about in this area, we do want to see Aviva maintain their upward trend in customer feedback and their downward trend in complaints. We also want to see evidence of their continued commitment to improving the customer experience and delivering digital capability.
Key Question: Does Aviva provide a comprehensive communication support programme across its entire workplace pensions business and at each life stage, e.g. upon joining, during accumulation and "At retirement"?
Pensions are complicated. Aviva should be communicating with you in plain language and easy to understand terms to help you understand what your pension means to you. We are pleased that Aviva has improved a number of communications.
The annual statement you receive which explains your pension benefits has been simplified and shortened. Aviva has also reduced the length of a number of other communications to make them clearer.
We are particularly encouraged by the efforts Aviva is making to improve communications for vulnerable customers. This includes a review to ensure that they have simplified language, enlarged font sizes for customers with impaired sight, and that these are tested by customers to ensure these changes make a difference.
There is never an end to making communications clearer. The various forms of communication whether by paper or digitally need constant review and we expect to see a continued improvement in how Aviva communicates with you. We will be looking for an extension to the programme of improvement to vulnerable customer communications to ensure that all members receive clear, easy to understand communications which help them better understand and manage their pension.
We will be working closely with Aviva to ensure that the materials used to communicate investment pathways are fit for purpose and we have asked them for early sight of these, together with a clear plan for delivering the relevant solution.
Key Question: Does Aviva promote greater member engagement across its entire workplace pensions business?
Engagement has been difficult to measure, and we don’t believe this is unique to Aviva but is an industry-wide problem.
This is quite a wide-reaching question and can include things like:
How many members have an online account where they can check their pension value, undertake transactions and read important information about their pension?
How does Aviva ensure they understand the views of their customers?
- How many members are saving more than the minimum required under auto enrolment rules?
- How does Aviva engage in financial education and advice to improve members’ understanding of the impact of not saving now for their future?
- How does Aviva engage with their customers to understand their views on what represents Value for Money?
We’re not completely satisfied that Aviva do enough to ensure members are engaged. We are encouraged by some of the commitments they have made to improve member engagement, but they need to do more.
The commitment from Aviva to undertake more customer research and more direct customer engagement is a great move forward. We will expect to see the results of this in a way that gives us the ability to understand member views.
Aviva can also improve the way they help to educate members. We have asked them to extend their financial education support to ensure that it is available to significantly more of you. They should do this through greater promotion of its availability and by improving online financial education content.
Product design and suitability
Key question: Are Aviva's products clear, transparent, fair and reviewed regularly?
Whether you are in an older or more modern product, Aviva undertakes regular reviews to ensure your product is performing as it was designed to, and that the product features remain suitable. The IGC receives regular updates from Aviva on issues which have the potential to cause financial detriment or poorer outcomes. We believe the process is robust and fair, ensuring that where any financial loss is suffered by customers, they are fully compensated and put back into the position they would have been in had errors not occurred.
Over one million customers have now been moved from targeting an annuity at retirement to a more appropriate drawdown target, and members who previously had no access to pension freedoms have potentially had their outcomes improved by the launching of new investment funds to meet that need.
The IGC remain convinced that members in older products will benefit from a move to a more modern product with lower charges, a better investment proposition and a dynamic online experience. Aviva’s commitment to us last year that they would undertake a Customer Transfer Programme is starting to gain some momentum, but we want this to speed up. Their estimate that this could take 3-4 years to complete does not match our desire to see an improvement in the move from higher charges and a poorer member experience and we will be looking for a greater sense of urgency.
Investment Choices and Returns
Key question: Does Aviva offer appropriate and innovative fund choices which cater for all including movement towards pension freedoms?
The launch of Aviva’s new default investment funds is a big step forward offering what is, in our opinion, a stronger default with a broader mix of assets which should offer a better prospect for growth. Equally, the launch of new funds for members in older products or changes to the outcomes to their investment target is a boost for a large number of customers. Investment performance for the year has been strong, and it is particularly pleasing to see that Aviva’s Stewardship funds have also performed well.
We believe that the “My Future Focus” default offers better Value for Money than the “My Future” default despite the slightly higher cost. It also offers stronger Environmental, Social and Governance (ESG) credentials. We would like to see Aviva doing more to encourage employers to select My Future Focus as their default and offer switches from My Future to this fund.
With the introduction in 2020 of investment pathways, we will be asking Aviva to demonstrate that their offering has been adequately researched and offers the best possible solution for members.
Environmental, Social and Governance (ESG) issues
Key question: Are ESG factors suitably considered when designing default funds, and are ethical investments available to members?
We are in little doubt that Aviva has strong ESG credentials. Employers are becoming more challenging of pension providers when selecting them to provide their workplace pension, both in terms of how they act as a provider, but also the investment choices available to them. The ESG factors considered in the My Future Focus default will go some way to providing employers with a stronger choice of default. Their Stewardship funds are now available to many more customers, and they also offer these funds in a lifestyle strategy which employers can select as their default fund.
Aviva has ambitious plans to deliver a wider range of climate friendly funds and we will be monitoring progress in this area. At present there is no ESG “tilt” in the My Future default fund in which the majority of members are invested, and we have asked Aviva to look at how this position can be improved.
Around 95% of members are in modern or “currently marketed” products.
If you are in a currently marketed product, the only direct charge you pay for your workplace pension is an Annual Management Charge (AMC). The AMC is made up of a charge for administering your pension and a charge for the investment you have selected. Most of you will be invested in the default investment fund chosen by your employer. Around 95% of all members in modern products are in the default fund.
The FCA introduced a mandatory cap on the charge members pay when they are enrolled into their workplace pension. This means that nobody joining a workplace pension will pay more than the maximum of 0.75% each year as an AMC (or 75p for each £100 invested). Aviva has provided a breakdown of charges being applied under their currently marketed policies, and it is clear that many of you are paying less, often significantly less, than 0.75%.
There are reasons why some members may pay more than the 0.75% charge cap:
- Their employer has chosen not to use the scheme for auto-enrolment purposes;
- The member left the scheme before the charge cap was applied;
- The member has chosen to invest in more expensive funds (the charge cap only applies to default funds)
Overall, we are satisfied that the vast majority of members receive very good value for money for their workplace pension scheme when investing in one of Aviva’s actively marketed products.
There is an obvious contrast when looking at much older non-marketed policies. Only a very small number of these (around 15,000 members) were used for auto enrolment, and so only these members’ have the charge cap applied.
Source – Aviva
Source – Aviva
While some members are benefitting from actions Aviva has taken to reduce charges, we want to see more done to reduce charges further. Aviva has started a programme to transfer members in older products to more modern, lower charging products. More detail of this can be found later in our report. There is still a differential between charges for some older products and newer products even though the highest charges on some older contracts have been removed over the last 5 years. We would like to see the transfer programme into new contracts accelerate to further improve outcomes for members in these older products.
There are other charges impacting some savers in older products. A relatively small number of members still have higher charging units applied (often called “Capital” or “Initial” units). Aviva has now removed these charges for any members over the age of 55, but they remain for younger savers.
We wrote to Aviva’s Conduct Committee in 2019 requesting them to consider the removal of higher charging units for members aged under 55. At that time, they stated that they would not make the changes, but they would keep the matter under review.
With that in mind, we wrote with a stronger challenge again this year and we are delighted to be able to report that Aviva has now agreed to remove these higher charging units and the exit charges associated with them. This will benefit around 30,000 members. We appreciate that this is a costly exercise for Aviva, but we expect them to make the changes as soon as is reasonably possible.
Progress in reducing charges
The IGC has made significant efforts to get charges reduced over the past 5 years.
Some of the activity has been driven by regulation. Other activities are as a direct result of the challenges the IGC has made to Aviva.
The FCA required all firms to remove Active Member Discounts (AMD) from workplace pensions by April 2016. Members who leave service of their employer cannot therefore be charged a higher Annual Management Charge than active members.
Monetary policy fees, an administration charge (paid monthly or yearly), were removed for all active members in 2016, and all leavers in 2017. Over 75,000 members have benefitted from this charge removal.
Paid Up Penalties were removed from some older products meaning members were no longer charged a fee for stopping their contributions. 3,000 members benefited from this change.
Exit charges were capped at 1% by regulation from 31 March 2017 for all members aged 55 or over.
- Higher charging units, sometimes called Capital or Initial Units, have been removed for all members aged 55 or over. Around 55,000 customers will benefit from the removal of exit charges and higher charging units.
- Members who pay more than 1% due to a number of historic features within their products which cannot be removed will have all charges in excess of 1% reimbursed back to 1st January 2017 when they exit. This also applies to members below age 55 when they exit or transfer away from Aviva. As at the end of December 2019, 4,603 policies have been reviewed on exit, with payments being made to 728 members. The average payment is £106.
Many thousands of customers have therefore benefitted from these changes, and a further 30,000 members aged under 55 will benefit from the removal of higher charging units in older products.
Service and administration
It is not simply about how long it takes Aviva to answer your request, but whether they provide a good quality response, answer your questions fully and whether they give regard to you as a customer, taking into account your personal circumstances where necessary.
In our report last year, we spoke about a programme of change within Aviva’s operations areas called “99&3”. This aims to ensure that 99% of all demands are completed at the first point of contact within Aviva, and of those which can’t it would take no more than three days to complete them, or three clicks for you to complete the task online
Aviva has continued to make improvements to their systems and processes to enable staff to meet these goals. These include the introduction of extended online facilities, a simpler retirement claims process for small pots, the use of electronic signatures to cut down on the time taken to receive signed paperwork and simplification of the process to pay one-off contributions leading to a 40% reduction in the time taken to process this task.
These features are not available for everyone just yet, but we have seen Aviva’s delivery plan to extend the programme of improvements to all of you. We will be monitoring progress closely to ensure that service improvements are delivered.
In the last two years we have seen big changes in the way Aviva measures and delivers customer service. They are moving away from agreed service levels of turnaround times for specific tasks choosing instead to focus on the customer journey and experience. If you write, telephone or e-Mail the customer services area, your entire request is now owned by a single person. Whether you have a simple request like asking for a valuation of your pension or a more complex request such as full details about your policy, that person will take responsibility until your request has been completed.
Improvements have been made to both systems and processes meaning that a number of tasks are now fully automated, and we have seen improvements to processing times as a result as shown in this chart which shows a downward trend in the number of days it takes to complete a piece of work.
The reporting information the IGC receives has evolved further in the last year enabling the IGC to cross-examine the Aviva teams more effectively.
All processes are subject to regular quality checks helping to drive further improvements in the member experience and to identify skills gaps within the operations areas. All financial transactions are subject to authorisation which is set within the computer systems. No financial payments can be made until the correct level of authority has approved the payment.
The improvements made in administration are reflected in the feedback customers are giving. Aviva uses a measure called “Net Promoter Score” to measure customer satisfaction. They have shared the results with us for the 18 months to December 2019 and they demonstrate a continued trend upwards and are running above the company’s target as shown in this chart.
The FCA defines a vulnerable customer as “someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”
All Aviva staff are trained to recognise a customer who might be displaying signs of vulnerability. This can include communication issues, mental health problems, financial hardship, or a significant life event such as redundancy or the death of a close relative.
Over 300 members of Aviva staff have been appointed as vulnerable customer “champions” who give support to staff who deal with customers displaying signs of concern. All of these champions have been given training by The Samaritans, and Aviva is also rolling out training to help staff deal with customers who suffer from dementia. In extreme circumstances, staff have found it necessary to contact emergency services, local charities or social services to ensure the safety and wellbeing of their customers.
We are pleased to see that Aviva takes their responsibilities in this area seriously and rate the work they are doing very highly.
Aviva’s administration centres
Aviva’s currently marketed products are serviced at two key centres - Dorking and Sheffield. This year the whole IGC spent a day in the Sheffield office meeting some of the staff and listening to customer calls.
We also had detailed presentations to see what controls are in place to ensure that transactions are processed in a timely and accurate way. Overall, we were impressed with the professionalism of all the people we met. Some of the IGC members have also had site visits to the Dorking centre.
There is currently a programme in place to move the majority of administration tasks from Dorking to Sheffield, and we were reassured by the additional training being given to staff to ensure that the work was being moved in a controlled way and that staff had the right level of training and support to ensure they were fully competent to undertake the new tasks.
We will be making more visits to Sheffield as this programme continues to ensure there is no reduction in the quality of the service Aviva provides.
When a customer complains we want to ensure that Aviva has the necessary framework in place to answer their concerns both quickly and fairly. We have been provided with management information which is regularly shared with Aviva’s senior leaders. This includes details of the Root Cause Analysis of the complaints which, when completed, is fed back to the customer service teams who will undertake additional training or implement improvements to processes.
In addition, a robust process is in place to undertake quality assurance on completed complaints to make sure the correct outcome was achieved. Should errors be found, the complaint is reopened, and the necessary steps taken to address the customer’s initial concerns. We are encouraged that the number of complaints being reopened is very low.
Where a complaint is found to be justified, Aviva ensures that any financial detriment to the customer is paid in full.
The number of complaints is reducing due mainly to improvements in administration whereby work is being turned around more quickly and accurately. While the reduction is welcome, we will continue to monitor the position and hope to see a continued downward trend.
Audit and Assurance Faculty Reporting [AAF]
Aviva undertakes annual AAF reporting which tests the robustness of their controls around how they administer their workplace pensions.
Specific areas tested include how financial transactions are processed and authorised, how your money is secured, how systems and data are protected against cyber-attacks and how that data is transferred between systems securely. As you would expect, Aviva operates a robust controls framework to protect both their own and their customers’ assets and data.
The report is undertaken by a firm of independent auditors who carry out a thorough desk-based assessment. The report for 2018 has been made available to the IGC and there are no exceptions noted, meaning that there is evidence that the necessary controls are in place. The report for the year ending 31 December 2019 was not available at the time of writing, but we understand that work is well underway to finalise it. We will comment on the findings in our next annual report and note any exceptions and the suitability of any management response.
Aviva has committed to a continued programme of investment into new technology to make it easier for customers and for their customer services staff.
This includes new technology and digital capability for members and employers, and further improvements in automation to speed up service. With a continued focus on quality, we expect to see the trend of lower complaints and higher customer satisfaction scores to continue.
In summary, the IGC considers that members are receiving good customer service. We will continue to monitor the service levels, complaint volumes and customer satisfaction scores together with the delivery of improved service through the use of technology.
We have seen a number of communication improvements over the last 12 months which are aimed at making your pension easier to understand. In particular, the annual statement which Aviva sends you has been simplified and shortened along with a number of other key documents.
Aviva has developed a comprehensive engagement programme and communications to provide clear, timely and relevant information so members can make the most informed decisions and maximise their savings. They apply their data science capability to develop engagement programmes tailored to individual profiles. Their latest developments, as part of these programmes, include:
- “Nudge” communications – these target members to take action, whilst also increasing engagement and developing a greater understanding of their pension. Nudges include adding a beneficiary, registering their account, reviewing their investment choices, opting to go paperless, viewing their annual statement and reviewing their retirement date. They also congratulate members as they reach key pension savings milestones, in order to try and further encourage savings, particularly with younger savers.
- Engagement campaigns – these include bite sized segmented videos aimed at improving members’ understanding of their pensions and their different options, and their “Shape My Future” campaign consisting of an email and worksite materials which direct members to a lifestyle forecaster tool and an educational hub where they can find regularly updated articles and videos that detail how and why it’s important to save for the retirement they want.
- Financial campaigns which encourage members to take a “pension fitness test” to see whether their monthly pension contribution is enough to give them the lifestyle they want when they retire, and to consider any previous pensions they may have before they’re forgotten.
Aviva has also removed the need for some paper-based communications to simplify some tasks. They now offer paperless transfers-in which can all be done over the phone without the need for forms or signatures in most instances. SMS text messages are now used to keep members informed of progress in processing a retirement claim.
We are pleased to see the use of new and innovative methods of communication which increase members’ engagement with their pension and educate them in financial wellbeing. We expect to see increased deployment of these engagement programmes and increased availability to all groups of policyholders. As Aviva’s plans develop in 2020, we will see increased online access to communications and multi-channel communications.
Member engagement is one of the key challenges in the industry and for Aviva this is no exception. Although there has been a lot of good work done to improve member engagement communications, Aviva’s pensions literature was identified by customers as an area requiring improvement which was also reflected during independent research.
Following the consultation Aviva is reviewing literature
- to help members better understand the value and benefits of their pension
- to motivate them to take an active interest in how and where their money is invested
A new suite of literature will be rolled out throughout 2020. We have asked to see copies of some core documents such as joining packs, retirement wake up packs and transfer documentation and hope to be able to provide more commentary on the success of the project next year. We are content that Aviva is taking your feedback into account and any improvements to communications is a good thing.
Aviva’s Financial Education Team have seen a significant increase in activity during 2019. They provide presentations to workplace pension members either face to face or by live online streams. These include “Mid-Life MOTs” designed to support the growing population of over-45s in workplace pension schemes. These sessions are run in conjunction with Aviva’s Health business and cover both wealth and wellbeing looking at members’ financial situation and also educating them in matters such as diet and fitness. They also run seminars aimed at members aged over 55 to explain their options in retirement.
Last year the team presented to almost 37,000 of you, an increase of almost 40% on 2018. The IGC has seen one of the team’s presentations and it is delivered in very clear, easy to understand language with key messages covered well. We have chosen this year to provide an example of the type of material Aviva uses to educate members. At Appendix A you can see some material which they use to show the benefit and the true cost to members of increasing their contributions.
The IGC view this service as positive and very valuable – it looks to educate members at key stages of their working life in the importance of saving for a better retirement. It is a constant battle for pension providers to engage effectively with members, and education is a key factor in encouraging members to take action to improve outcomes in later life. Feedback from both members and employers has been very good, with 96% of members feeling motivated to take action as a result of the presentation.
The IGC encourages Aviva to make this offering more widely known to employers so greater numbers of you can benefit from this help. We also feel that Aviva should extend this service to help members under age 45 (e.g. at significant life events such as changing employment) and that more presentations should be available online and on demand (i.e. webinars, films etc.)
Aviva’s Financial Advice service
Aviva provides a financial advice service which is available to all their pension customers. This service has been repositioned to provide pre-retirement rather than at-retirement advice and also includes a specialist team of advisers dealing with advice on transfers from Defined Benefit (DB) schemes where advice is mandatory for all transfers over £30,000.
Members are only charged for advice after an initial meeting with the adviser and after having signed an agreement. Charges are set at 2.5% of the value of the pension assets transferred which is capped at a maximum charge of £5,000. This is an increase in fees over previous years, but the IGC believes it represents good value when compared to charges levied by other firms and independent advisers.
The IGC has also met the leaders of the advice team to discuss the operational aspects, training, standards and philosophy. The team was also assessed externally and independently, and the results were positive.
The operating principal for the advice team is to cover costs rather than operate as a profit centre for Aviva. The service operates on a non-contingent charging basis, which means once an agreement is signed by the customer, adviser activity is chargeable i.e. the customer will be charged for the personal recommendation whether that is to remain in their DB scheme or to transfer.
A view on whether a transfer is suitable or not is only given when a full analysis of the member’s circumstances, attitude to risk and objectives has been completed. The adviser recommendation is tailored to every member and must pass the ‘clearly’ test (clearly in the member’s best interests).
If following the analysis Aviva cannot offer the best destination outcome, then options will be explained, and the customer will not be charged. Aviva Financial Advisers do not accept transfers against advice given and operates within a robust control framework to ensure this principle is not abused. This includes 100% quality assurance checking which is undertaken independently.
The IGC is satisfied that the service offered represents good value and ensures that members have access to a quality advice service at the right time.
Understanding the views of younger savers
In 2019, we asked Aviva to undertake some research to understand more about the views of younger savers (both “Millennials” and “Generation Z”). More younger members are being enrolled into their employer’s pension scheme as a result of auto-enrolment, and the IGC want to understand more about their views around Value for Money.
Aviva has undertaken an initial survey of their own staff on this topic and encouragingly we found that most of the respondents in both age groups were saving at or close to the maximum personal contribution to their pension to benefit from a higher employer contribution. Not surprisingly, the reasons for not making higher contributions were due to other financial commitments such as saving for a home or paying off debt such as student loans.
We asked what would encourage them to save more, and most respondents felt being nudged into increasing their personal contributions was an excellent way of making them think about their pension more carefully, the caveat being that these shouldn’t be too frequent. A smarter way of providing “what if?” projections to show the impacts of saving more were also highly rated.
One of the more surprising responses was around environmental and socially responsible investment options (‘ESG’) in the scheme default fund. While there was an overwhelming response that this was very important, most said that they would only consider it if returns on investments did not suffer a resulting decrease, and that charges were not higher. This area and views upon it are fast-changing and the IGC expects that these views may alter to some extent in the future.
In summary, the research showed that the respondents were generally engaged with their pensions, most pay more than the minimum contribution, they see low cost and a good choice of investments as a key Value for Money driver, and that pension contributions are a priority alongside housing and living costs.
We have asked Aviva to extend this research and they have agreed to undertake a significantly wider research exercise in 2020. More detail of these plans can be found in the section of this report setting out our priorities for the year. The IGC is keen to see results over a larger member sample from different employers and, in particular, to see if views on ESG aspects of investment funds are moving.
Of course, Aviva can only help you manage and engage with your pension if they know where you are! The FCA expects providers to manage their “gone away” population (“address unknown”). Data protection legislation also requires providers to have up to date addresses for their customers.
In 2019, Aviva managed to reconnect with 168,000 customers, although new volumes of “gone aways” was running at around 15,000 each month. 100,000 of new addresses found related to leavers from workplace pensions. This exercise for Aviva in 2019 cost around £3.1 million which in our opinion is money well spent.
Aviva is therefore being proactive in their approach to customer tracing. In addition to more traditional methods of tracing customers they are actively engaged with both the Association of British Insurers and the Government to explore better methods of identifying customer addresses. This could be by using alternative data sources such as the DVLA, TV Licencing and HMRC. They believe that this would allow them to trace around 80% of customers for whom they do not hold a current address.
Why is this important to you? Throughout the pensions industry there are billions of pounds of unclaimed assets, including pension funds and death benefits. We are satisfied that Aviva is going further to ensure that they can re-engage with their customers and it will be interesting to see the outcome of their actions in this area.
Product design and suitability
To ensure that all products are performing as they should, and that they deliver the outcomes promised to customers, Aviva operates a robust product governance framework. This includes a regular review of all products which aims to ensure that customers are receiving the best experience throughout the life of their product and at retirement.
Where issues or risks are identified which might lead to a poorer than expected outcome, a team of product managers will ensure that any necessary improvements are delivered. This may involve small changes to product features, a reduction in charges, changes to product literature or, where necessary, payments to members to put them back in the position they should be in.
At the start of 2019, Aviva had identified 40 “risk events” which had the potential to impact their customers. Whilst this may seem many it should be noted there are a vast array of products and platforms and that these events affect only a tiny proportion of policyholders. We are pleased to see that by the end of the year, that number had reduced to 26. We have however raised our concerns with Aviva’s senior management that some of these risks have been outstanding for more than 12 months, although we are confident that when they are fixed, appropriate controls are in place to ensure that members receive the correct redress.
We are confident that the product governance process works well and are encouraged that 24 of the 26 risk events currently in place were identified by the company as part of their ongoing governance rather than as a result of a customer complaint.
Lifestyling and Pension Freedoms
One of the larger risk events identified by Aviva related to members who were still investing in funds targeting an annuity at retirement. Since the introduction of pension freedoms, there has been a significant fall in the number of people taking an annuity, choosing instead to take the option of drawdown, where they can access their money as and when they need it rather than taking a regular monthly income.
Throughout 2019, Aviva identified 150,000 customers who were in the de-risking phase (10 years from retirement) with investment funds targeting to match annuity pricing at members’ selected retirement age. They wrote to these customers explaining that their investments would be moved to a more appropriate drawdown outcome. The exercise to move these members was completed in 2019, and total assets of over £2billion were switched into new investments. Around 870,000 members who are not yet in their de-risking phase will now target a drawdown option when they are ten years from retirement.
We see this as an extremely positive outcome with a million members benefiting from what we believe is a more suitable retirement outcome.
Customer Transfer Programme
We mentioned in our report last year that Aviva were looking to move customers in older products into more modern products with lower charges and better features. This programme has started, although progress has been slow.
As a result of the delays in the transfer activity Aviva’s Conduct Committee has now agreed to remove the impact of capital units for all workplace customers under the age of 55. In addition, Aviva will be engaging with around 100,000 workplace customers with smaller value pots (under £3,500) where higher charges represent a higher percentage of their policy value to encourage them to consolidate their pots.
One of the benefits of moving customers is that they will have access to improved features such as being able to access pension drawdown without the need to move to another Aviva product or away from Aviva altogether.
While the decision to remove higher charging units makes this work a little less urgent, we still want to see Aviva move quickly and will be receiving regular updates on progress. This programme is the main method for reducing the differential in pricing and value for money between older and newer contracts.
Investment choices and returns
Aviva’s new default funds
Aviva has now completed changes to its two main investment default funds. Over a million of you, around a third, invest in these funds and so it is important that they perform well and are subject to good investment governance. A default fund is the fund that your contributions are invested in unless you make specific choices of alternative funds. These default funds are considered to be Aviva’s flagship funds in the pension ranges.
My Future invests in passively managed funds with BlackRock Investment Management Limited being responsible for deciding the allocation between the different types of investments within the funds.
My Future Focus invests in both passively and actively managed funds but with Aviva Investors Multi-Asset investment team being responsible for deciding the allocation between the different types of investments.
In both cases, the allocations to the different types of investments will vary over time depending upon the investment managers’ views on expected future risk and returns.
My Future has a 15-year glidepath, and so if you invest in this fund, Aviva will automatically start to “de-risk” your investments when you are 15 years from retirement. For My Future Focus, the glidepath is 10 years. The difference between the two glide paths arises from the managers’ different views on the expected volatility and returns from the various asset classes. Before you reach your glidepath, you are invested in the “growth” element of the fund which aims to maximise th