Why the power of IGCs should not be underestimated
In August 2013, the Association of British Insurers wrote a letter to the Office of Fair Trading in light of a review of the pensions marketplace.
It proposed that independent governance committees would do three key things:
- Ensure employees receive value for money from workplace pension products;
- Determine how their provider should implement actions arising from the project board review of legacy schemes;
- Improve transparency and bring comparability over charges.
The Financial Conduct Authority took up many of the ideas proposed, and in April 2015 the IGC was born.
People have questioned whether a five-member team, plucked from the pensions and insurance industries to represent different skills and experience, can single-handedly change the contract-based pension system that has been in place for many years.
IGCs do have the potential to change things for the better and we need to be patient and give them time to develop
There has been some concern that IGCs do not have any legal powers to directly enforce change, and that they cannot adequately represent the individuals who are most at risk in the world of workplace pensions.
It is true that the powers of an IGC can look rather pedestrian and constrained in comparison with trustees of occupational pension schemes.
As the legal owners of pension scheme property, trustees have the power to enforce their views on investment managers and other service providers.
They can make decisions, give directions and, ultimately, move members’ money around.
In contrast, because workplace pension products are based on a contract made between a provider and each individual saver, an IGC is not in the same position.
It has no authority to intervene and amend those contractual terms, or to move savers’ money without their consent.
Despite this, IGCs do have the potential to change things for the better and we need to be patient and give them time to develop.
Reasons to be cheerful
IGCs are certainly a step in the right direction and there are many positive signs that should give us cause to be optimistic.
Most providers are taking these committees seriously, allocating senior management time and putting internal infrastructure and support in place to enable IGCs to function effectively.
The FCA has met with IGCs and pension providers to confirm what is expected of them, which gives a clear sense of direction from the top.
The IGCs have also established a discussion forum allowing them to share ideas, consider the challenges facing the committees and to work out how these might be managed effectively.
Considerable effort has gone into identifying what is meant by 'value for money', the different ways in which this could be assessed and the nature and scope of information needed from providers to do so
Finally, considerable effort has gone into identifying what is meant by 'value for money', the different ways in which this could be assessed and the nature and scope of information needed from providers to do so.
Many of these steps have passed under the radar in terms of press headlines. Let’s face it, they are simply not as interesting as stories about restricted access to pension flexibilities or further tax changes.
However, even those stories will at some stage involve workplace pensions, because the commercial and practical implications of receiving a bad IGC report should at least require providers to take notice of what their IGC is saying.
There are also other projects on the horizon that could offer IGCs traction.
For example, ongoing consultations from the FCA regarding consumer access to the financial advice market and the transparency of pension charges are bound to cross over into IGC territory.
All of this goes to show how important IGCs could be in the longer term. Their power may not be direct, but their role should not be underestimated.
Helen Ball is head of defined contribution at Sackers