FCA consults on value for money in workplace pensions
25 Jun 2020
The Financial Conduct Authority (FCA) is consulting on proposals designed to promote value for money for the members of workplace personal pension schemes, after a review identified inconsistences in the approach used by the two bodies which represent their interests
25 Jun 2020
The proposals aim to make it easier for Independent Governance Committees (IGCs) and Governance Advisory Arrangements (GAAs) to compare the value for money of pension products and services, enabling them to be more effective in assessing value for pension scheme members.
The regulator has also published a review examining how IGCs and GAAs – which act in the interests of members of workplace personal pension schemes – ensure those members receive value for money.
It found that while a number of IGCs are working well in this respect, there is a lack of consistency in the way IGCs and GAAs operate which means not all workplace pension scheme members see the same standards.
The review also found that some IGCs lack the necessary independence and were ineffective at challenging firms to ensure value for money for workplace pension scheme members.
Those IGCs which maintained independence from the firms whose pension schemes they had responsibility for delivered better outcomes for pension scheme members, while GAAs operated by third-party firms on behalf of pension providers were less effective at delivering meaningful improvements in value for money.
Over the period of the review (2017-2019) the FCA found there had been a small reduction in charges across all pension savings, although this cannot be directly linked to the work of IGCs and GAAs.
As a result of the review, the FCA has sent feedback letters to firms to ensure they make improvements to the way they work with their IGC or GAA.
The consultation paper includes proposals to specify a simple framework for the annual IGC and GAA value for money assessment process, including a definition of value for money and three key elements of value for IGCs to use when conducting their assessments.
The deadline for comments is 24 September.
IGCs currently oversee the value for money of workplace personal pensions provided by firms like life insurers and some self-invested personal pension (SIPP) operators. They provide independent oversight of workplace personal pensions in accumulation (building up pension savings) and of the investment pathway solutions that will have to be offered from 1 February 2021. IGCs act on behalf of consumers who are likely to be uninvolved or less engaged with their pension savings.