Independent governance committees at big-name pension providers are failing to safeguard the interests of savers and the FCA must take action, fresh research finds.
In 2015, the FCA required contract-based pension providers to appoint IGCs to act as champions of savers’ interests.
IGCs are required to publish annual reports to increase transparency and encourage comparison between providers.
However, a new study from ShareAction argues the committees must do better.
The study, called Who Watches the Watchers? Transparency and Accountability in Workplace Pensions, ranks the quality of 16 IGC reports from the largest UK pension providers.
Although the IGCs “generally seem to have made a good start in holding providers to account on the value they are offering”, the study found many reports lack detail and offer unsubstantiated claims that savers’ interests are protected.
Five out of 16 reports – nearly a third – did not state how much savers are charged by the providers of their workplace pension provider including those from Aegon, BlackRock, Fidelity, Virgin and Zurich.
Seven out of 16 – nearly half – did not report data on how well savers’ investments were performing, including reports from Aegon, BlackRock, Fidelity, Old Mutual Wealth, Phoenix Life, Prudential and Zurich.
ShareAction believes widely varied standards of assessment and reporting show that a more standardised approach is required.
To help standardise reporting it recommends the FCA issues further guidance on reporting costs and charges.
This could include a checklist of relevant charges and costs, to be published by the FCA’s institutional disclosure working group.
Furthermore, the FCA should consider developing its rules for committees and issue best practice guidance to give greater clarity about what is expected of them.
This should include setting a specific definition of value for money and producing more comprehensive guidance about how to assess it.
The study recommends the committees themselves produce a full annual account of their work, alongside a shorter, more engaging summary for members.
In May 2017 the FCA deferred its review into the committees and has not indicated when this might be taken up again. ShareAction chief executive Catherine Howarth says this was the wrong call.
Howarth says: “This research should be a major wake up call for the FCA, with its mandate to make markets work well so that consumers get a fair deal.
She says: “We hope this study will prompt the FCA to refocus attention on the interests of UK pension savers who remain vulnerable in a market characterised by consumer detriment and information asymmetry.”
The FCA says in a statement that it remains focused on making sure consumers are protected.
The statement says: “Through work we have already undertaken, we found that overall IGCs are acting in accordance with their terms of reference by influencing, supporting and advancing the significant reduction in costs and charges that have been achieved.”
It says: “We are currently carrying out a number of other pieces of work that impact IGCs. For example, we recently published a discussion paper on non-workplace pensions highlighting the role that IGCs play in workplace pension schemes, and asking for views on whether independent governance could play a role in delivering fair outcomes for non-workplace customers.”
It adds: “We are also currently considering what form of rule changes may be appropriate to address the Law Commission’s 2017 proposals on pension funds and social investment.”
Financial Life Planning IFA Kate Shaw says there is inconsistency in how IGCs are reporting.
Shaw says: This would make it very hard to draw meaningful comparisons – from reading the report I am making the assumption that the ICGs made their own decisions about how to report. I’m not sure this is going to be helpful going forward – if this is to be ongoing then there is certainly a need to improve the process to avoid it become just another cost to provide meaningless data.”
She adds: “Vague, high level summaries are not going to give a scheme member any information that will help with the engagement issues – if the scheme member is put at the centre of this then perhaps the reporting emphasis might change.”
Cervello Financial Planning director Chris Daems adds: “I’d suggest the focus should be on areas that truly engage both employers and employees and I’d also suggest that the reality is that most employees and their employers would never spend their time reading these reports and therefore making changes to these reports won’t necessarily encourage greater engagement.”
The 16 IGCs looked at from the highest to lowest rank include Aviva, Legal and General, Standard Life, Scottish Widows, Royal London, B&CE, Prudential, Abbey Life, Aegon, Phoenix Life, Fidelity, Virgin Money, Zurich, ReAssure, BlackRock and Old Mutual Wealth.