The FCA has hinted that it could extend the remit of independent governance committees to give them responsibility for overseeing providers’ drawdown arrangements.
Firms providing workplace pensions have had to have an IGC in place since April 2015 to report on value for money.
The committees can look at value for money in other areas such as drawdown, but their official responsibility is specifically related to workplace pension provision.
Some IGCs at companies that offer workplace pensions and other products have made assessments of decumulation offerings. However, firms that offer drawdown but not a workplace pension will not have an IGC in place to scrutinise the policy.
Responding to a Law Commission report on pension funds and social investment yesterday, the FCA said that it would consult on new rules to force IGCs to also assess environmental, social and governance concerns.
It said that it would combine this with work in its ongoing Retirement Outcomes Review, which could hand IGCs responsibility for reporting on drawdown too.
The FCA response reads: “We are currently undertaking work on retirement outcomes – including on potentially making IGCs responsible for ensuring that decumulation products provide value for money – and to explore whether competition is operating effectively in the interests of non-workplace pension customers.”
Hargreaves Lansdown head of policy Tom McPhail says: “Whilst the FCA doesn’t explicitly say it will ask IGCs to take responsibility for scrutinising drawdown plans, it is a strong hint this is what we’ll see in the forthcoming Retirement Outcomes Review paper.
“Given they were responding to a paper on ESG issues and the need to take account of members’ ethical considerations, for them to flag up their work on retirement outcomes and ‘potentially making IGCs responsible for ensuring that decumulation products provide value for money’ looks like a pretty strong steer that’s what we’ll see when the Retirement Outcomes Review paper is published.
“Such a move would also make a lot of sense. We’re expecting the FCA to ask providers to deliver simplified pathways to help their non-advised members transition from work to retirement; if you’re doing that then it also makes sense to build in a layer of independent governance to oversee how commercial companies do actually look after their customers through this process.”