Consumer champions have branded the new Independent Governance Committees for contract-based schemes “retirement homes for financial services executives, actuaries and investment bankers”.
But providers have hit back, claiming the committees provide greater consumer protection than trust-based schemes.
The requirement for governance committees to be established for auto-enrolment schemes was introduced following the Office of Fair Trading’s damning report into the defined contribution market. The committees are responsible for ensuring members are in good value accumulation schemes.
Providers had to have their IGCs in place by 6 April, the first day of the new pension freedoms. FCA rules state there must be a minimum of five members, with the chair and a majority being independent, however all members are appointed by the provider.
All the major providers have revealed their appointments, but experts say they lack true independence and do not have a strong enough consumer focus.
Ex-Which? financial services team leader Dominic Lindley says: “These IGCs look like retirement homes for financial services executives, actuaries and investment bankers.
“I also simply do not understand how someone can work for a company that also provides other services to the insurers and not be conflicted.”
TUC pensions policy officer Tim Sharp says committees are at risk of becoming filled by a “magic circle of industry insiders” that could “make a mockery of the whole IGC initiative”.
He says: “It seems what we’ve got is committees stuffed with corporate trustees and industry veterans. We’d suggest you need the experts and there are some really good people on the committees, but you also need outsiders bringing in a different set of experiences.
“Without a variety of views you risk having bodies that have insufficient independence from insurers and are vulnerable from group think – like what happened in the banking crisis.”
Responsible investment charity ShareAction chief executive Catherine Howarth says IGCs are a “step in the right direction” but warns they “appear lacking in the diversity necessary to properly represent the full range of pension fund memberships”.
She notes tht 80 per cent of committee members are male while independent trustee firm PTL sits on four of the major insurers’ committees.
B&CE operates the UK’s largest stakeholder scheme – which is required to run an IGC – as well as mastertrust The People’s Pension.
Head of policy Darren Philp says while IGCs can never be as “truly independent” and lack “formal powers” they have an ability to whistleblow which could be effective in holding providers to account.
The committees have the power to escalate concerns to the FCA and write directly to members.
Scottish Widows head of industry development for corporate pensions Peter Glancy says the combination of FCA and IGC oversight means contract-based schemes will provider greater protection than schemes managed by a board of trustees.
He says: “The committee can go to the FCA or write to the whole client bank, so their power is enormous. No product provider is going to risk ruining their reputation and share price and losing a lot of clients.
“You’re bringing together the management of collective interests through the IGCs, and the oversight of individual interests through the FCA. It’s like double protection, even more so than the trust-based world.”
Glancy adds that the provider has given its committee funding to commission independent research to survey the views of scheme members.
The FCA says the first priority of the committees should be to oversee insurers’ efforts to address up to £26bn of pension assets held in expensive legacy schemes. The regulator says eventually the IGCs will be required to consider the value for money for members once they begin drawing on their pensions.