Proposals to force insurers to establish governance committees to oversee contract-based pension schemes are “toothless” in their current form, the TUC claims.
Speaking at an MM Wired debate on auto-enrolment, TUC pensions policy officer Tim Sharp said independent governance committees – which providers agreed to set up following the Office of Fair Trading’s report into the defined contribution market – would be “fairly toothless bodies”.
He said: “It’s very much a small first step. Their ability to influence providers and actually make change happen unfortunately looks like it will be pretty limited.”
Sharp also suggested schemes run by trustee boards did a better job of serving members compared with contract-based schemes.
He said: “We’ve got to look at scheme governance. There’s a big conflict of interest on contract-based schemes – they don’t have to be run in the best interests of members. The impetus for providers is to make as much money as they can. Do we need to extend trust-based schemes?”
But Hargreaves Lansdown head of pensions research Tom McPhail insisted IGCs would exert influence over providers.
He said: “Speaking as a pensions provider, I can tell you they will not be toothless and they will have real business influence.”
The FCA’s consultation on the rules governing IGCs closed last week, with the final rules expected in January 2015.
In its response, Aegon warns the limits of contract law could restrict the ability of IGCs to perform their oversight role.
Aegon regulatory strategy manager Kate Smith says: “Contract law may act as a barrier to an IGC’s effectiveness. IGCs, or the firm’s board, cannot simply make changes to the members’ benefits without their consent.
“Newer contracts may offer some flexibility for change, but the options open to IGCs and firms are severely limited. Changes made by providers, without consent, risk compensation claims from members. This is an area which we believe the Government, regulators and industry needs to work closely together to resolve quickly.”