Independent governance committees could be hampered by a shortage of experienced professionals as contract-based scheme providers race to set up bodies by April 2015, with industry figures suggesting sharing personnel.
Industry providers and groups have suggested governance experts could work across a number of committees, though others have raised concerns this would create the possibility of systemic errors.
Following the Office of Fair Trading’s damning report on member value in defined contribution schemes published in September last year, the Financial Conduct Authority – which regulates contract-based scheme providers – has been working with the Pensions Regulator to align governance standards with those of trust-based arrangements.
From April next year, it will be mandatory for contract-based schemes to have an IGC in place, and the FCA launched a consultation this month looking at the proposed rules for those committees.
However, Paul McBride, head of governance at Legal & General Corporate, which set up its own IGC in May 2013, said he foresaw difficulties for fellow contract-based providers in finding people with the right skills.
[Sharing IGC members] increases the chances of systemic error or failure on a potentially large scale
Peter Askins, ITS
He said: “All the expertise has lain with the providers, so finding somebody who’s completely independent sort of suggests you’re going to be poaching from other firms… and really there will just be a shortage of people who have both the ability to look at it from a fiduciary perspective and a very technical perspective.”
Despite "commercial sensitivities", which McBride said could be dealt with "within the confines of the contract", he believed spreading committee members across IGCs would better enable the sharing of best practices across the industry – and he expected that some of its IGC members would participate on other committees.
“Pragmatically, we think it probably doesn't harm [providers] because if good practice is evolving in one firm, it’s better for that good practice to be spread across other firms, rather than working in a siloed approach… in fact we really should be encouraging that.”
Systemic error risk
However, Peter Askins, director at Independent Trustee Services, warned the concentration of IGC appointments to a small group “runs the risk of a one-size-fits-all approach developing that may not be in the best interests of the provider or the beneficiaries”.
He added: “Also it increases the chances of systemic error or failure on a potentially large scale.”
Askins said it would be key for the FCA to draw on the experiences of trust-based scheme best practices to avoid the regime degenerating into a “tick-box approach”. He added that as well as independent trustees, senior administrators with in-depth DC experience could have a role to play.
A spokesperson for the FCA said it was open to the possibility of an individual serving on more than one IGC as an independent member.
“We consider that there may be valuable read-across between IGCs operated by different firms, for instance in terms of how IGCs go about assessing value for money,” the spokesperson added.
Tom Barton, partner at law firm Pinsent Masons, agreed but said although the FCA provides a helpful steer in its guidance, it is up to IGCs to construct a method of assessing value, and the sharing of committee members could aid that process.
“There is no prescribed methodology for determining what value for money looks like,” Barton said. “The sharing of governors across IGCs may help to establish a consistent approach to value-for-money assessments.”
Richard Wilson, DC policy lead at the National Association of Pension Funds, said it would be working closely with the FCA to monitor the success of IGCs and that it would like to see a review of the current framework after two years.
He said: “One of the things we’d like to say in our response to the consultation is the rules need to be reviewed to see if they’re working, having the impact we hoped they’d have, if any of these rules are stifling and making it difficult to get in good people… and whether any of these rules need to be tweaked.”
The FCA’s consultation closes on October 10.
