Most recently this has been apparent as providers of workplace personal pensions have established their Independent Governance Committees (IGC) following a new Financial Conduct Authority (FCA) requirement.
IGCs will have a duty to act in the interest of workplace scheme members and objectively assess the value they receive. The committees will operate independently of their provider and where an IGC has concerns, it must raise these first with the provider’s Board and then escalate them to the FCA if it doesn’t feel they’ve been addressed properly.
On some issues the FCA rules aren’t prescriptive and so this gives IGCs a measure of freedom. The FCA isn’t intending, for example, to specify what value for money means and so it will be up to an IGC and its provider to collaboratively define value based on the characteristics of the provider’s schemes. They’ll also have to work together to set out how the IGC will work with the provider’s other governance committees and how to raise and escalate concerns.
There are minimum requirements in regard to the independence of committee members, their minimum number, their term of office, and the way they are recruited. However, there is a degree of scope around the expertise and experience committee members can have so long as they have the ability to carry out the role.
Different IGCs will, therefore, have different blends of skills. Some will lean more towards the technical, while others will additionally aim to deliver customer service understanding and entrepreneurial capabilities. In turn this’ll determine how each committee assesses value for money and the recommendations they come up with.
The extent to which providers engage with their IGC will also play a part in the effectiveness of individual committees. Will inductions for committee members be conducted at a cursory level or go into more detail and really provide an insight into the operational strategy and the individual commercial challenges and dynamics at play?
At the more involved end of the scale, IGCs that have an excellent understanding of the business and its strategic ambitions will be better placed to make informed judgements on value and to pick up on inconsistencies and areas for potential improvement.
In looking at value, I would like to see IGCs evaluating some of the more knotty issues that aren’t always black or white and can’t always be addressed by blunt instruments like charge caps. How should we quantify the value offered by with profits or loyalty benefits, for example? If a fund has charges above the 0.75% limit can its use be justified by its track record or the additional customer benefits?
As a provider we’ve got a very clear view on these issues, but working with our IGC will let us develop that view and explore how we improve the way we quantify value and deliver it to our customers.
That’s why we’ve put a focus not just on the technical expertise and experience of our IGC members, but also their customer service, collaborative working and entrepreneurial skills.
We’ve taken the IGC ingredients set out by the regulator and served them up in the most appetising committee we can. In doing so we believe we’ll benefit from a fresh perspective that’ll help us improve what we do, create more value for our customers, generate better outcomes for them and ultimately lead to greater trust and confidence in the pension industry.
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