The mirage of independence

The concept of independence is a vital one in pensions, where millions of members rely on independent trustees and governance committees to ask awkward questions of big insurers managing retirement money.

Many members would find the company’s involvement in gatekeeping access to trustees as stretching the definition of acting independently

Individuals in independent roles in the pensions space take on a heavy responsibility as they act on behalf of swathes of savers, who mostly do not, or cannot, meaningfully engage with their investment decisions. In a sector scarred by scandals over mis-selling and rip-off charges, these individuals play a key role.

But what passes as independence in pensions often falls far short of what regulators demand and what members believe they are getting. 

IGCs not truly independent

A case in point is independent governance committees, the bodies that were put in place in 2015 to add a vital layer of scrutiny to workplace pension schemes and which are now overseeing the pension pots of millions of savers. 

These committees are tasked with ensuring pension savers in contract-based defined contribution plans get value for money, and with tackling providers over issues that can damage members’ retirement pots.  

IGCs have a duty, as set out by the Financial Conduct Authority, to act solely in members’ interests and to act independently of the provider. But these committees are not truly independent when you consider how they are formed and can be disbanded.  

IGCs are appointed by the provider, who also pays their wages. The provider can also effectively sack them by not renewing their contracts.

It does not take Einstein to see how this power dynamic could make an IGC member wary of rocking the boat too vigorously or informing on their paymaster to the regulator. 

In spite of these arrangements, defenders of IGCs argue these bodies can still provide effective challenges to providers, and indeed some committees are showing backbone on behalf of members. But their dependence on employers is compromising their mission.

Another way in which the independence of these bodies comes into question is how employers are involved in facilitating access to committee members. 

It is rare that media representatives are given direct access to IGCs and instead must approach them through a provider, which ends up taking on a gatekeeper role. 

Recently, I had cause to contact the IGC of one large workplace pension scheme, whose members were caught out by the turmoil over the gating of Neil Woodford’s flagship fund. 

To reach the chair of the IGC, I had to make a request to the provider, who explained they could not enable direct access to the IGC chair for privacy reasons. Messages were passed from the provider to the IGC chair, I was assured. However, it was several days before the chair of the IGC made himself available for interview – well after my story deadline had passed. 

According to the FCA, providers should ensure that member views can be directly represented to the IGC. The rules do not explicitly cover journalists acting on behalf of members, but this is not an excuse for an IGC to not make themselves directly available to the media to explain their actions.

Stop shielding trustees from direct media scrutiny

My experience of dealing with trustees working on the defined benefit side has been equally as frustrating. It is often the case that the only way to arrange to speak to the independent chair of a trustee board is via the employer’s press office. 

This raises similar conflict-of-interest concerns with employers getting sight of, and potentially vetting, queries from the media to trustees – the individuals who should be putting members first. 

While some corporates will provide a direct mobile or email contact for a trustee, others are reluctant to do this and trustees do not challenge the status quo.

Just recently, the independent chair of one FTSE 100 DB pension trustee board I dealt with deflected a media inquiry back to the employer’s press office, the reason being, they said, was that the trustees did not have their own press team. 

Independent trustees of company pension schemes have a statutory duty to act independently of the company. There is not a precise definition of this duty. But many members would find the company’s involvement in gatekeeping access to trustees as stretching the definition of acting independently. 

Millions of members of pension schemes deserve better than the mirage of full-blooded independence in their pension system than they are currently given.

IGCs should be subjected to a stronger fiduciary requirement to put members’ interests first, with committee members remunerated by the members they serve. Trustees and IGCs should not be enabled by employers to be shielded from direct scrutiny by the media.

It is about time regulators and policymakers started asking awkward questions about what passes for independence for millions of pension savers.

Josephine Cumbo is pensions correspondent for the Financial Times