The National Association of Pension Funds (NAPF) has welcomed the focus on better governance in contract-based schemes in the Financial Conduct Authority’s (FCA) consultation on proposed rules for independent governance committees.
The NAPF says Independent Governance Committees (IGCs) represent a big step forward in ensuring that savers' interests are represented.
While NAPF members believe that IGCs should play a wide role in representing the interests of all members of contract-based schemes, they have expressed concerns about the extent to which IGCs will be able to exert influence over pension providers.
As part of its response the NAPF included the results of a short survey of its members and Pension Quality Mark (PQM) schemes. The survey found that three quarters of respondents supported the creation of IGCs, while only 10 per cent opposed them. The majority (85 per cent) of respondents agreed that IGCs need to oversee deferred as well as active members’ interests.
The survey also found that respondents believe that costs, charges and value for money (76 per cent), member communications (49 per cent), and investment performance (40 per cent) should be the highest priorities for the IGCs.
Respondents were split on whether providers would listen to IGCs concerns, with 36 per cent thinking they would not listen and 30 per cent thinking they would, and 33 per cent unsure.
The NAPF makes four key recommendations:
• As IGCs are untested a formal review of their efficacy should be completed after two years. This review should be completed in time to allow changes to be made by April 2018.
• A formal connection between IGCs and employer-led management and governance committees should be established.
• A common framework and an IGC network should be established to allow IGCs to share knowledge and expertise as well as to assess providers’ performance and services.
• The FCA should make explicit that IGCs can consider all issues that make a difference to members, including: member communications, administration, and support for members approaching retirement.
Richard Wilson, policy lead: DC pensions & investment, NAPF, says: “The introduction of automatic enrolment has made it even more important that contract-based pension schemes have independent governance arrangements in place to make sure they are run in the interests of members. But in order to be effective these independent governance committees, or IGCs, must be able to influence pension providers. The current framework sets out an advisory role for IGCs rather than giving them direct powers such as those given to pension scheme trustees. To make sure IGCs are structured in a way that allows them to meet their objectives, we believe there should be a formal review of IGCs after they have been in operation for two years so that any required changes to their framework can be made by April 2018.”
