Synopsis: FCA has recently published a Consultation Paper 14/16 on proposed rules for Independent Governance Committees for workplace pensions.

Date posted: Thursday, August 14, 2014

The Financial Conduct Authority (FCA) has recently published a Consultation Paper 14/16 (CP14/16) on proposed rules for Independent Governance Committees (IGCs) for workplace pensions (QWPPs) The proposals once introduced will require contract (as opposed to trust) based pension providers (typically those regulated by the FCA as opposed to those regulated by the Pensions Regulator (TPR)) to establish and maintain IGCs in respect of their QWPPs.

The FCA has been working with the Department for Work and Pensions (DWP) and TPR to design a package of reforms that will help ensure that all workplace pension schemes are high quality and offer value for money.

This consultation paper sets out the FCA’s proposed rules for IGCs.

These new bodies will provide governance oversight of defined contribution QWPP schemes, such as group personal pensions. They will act in the interests of scheme members by providing credible and effective challenge to providers on the value for money of their pension schemes.

Proposed Key Duties of IGC

The FCA is proposing that the key duties of the IGC would be:

• to act in the interests of relevant policyholders

• to assess the value for money of the firm’s workplace personal pension schemes

• where the IGC finds problems with value for money, to raise concerns (as it sees fit) with the firm’s board

• to escalate concerns to the FCA, alert relevant scheme members and employers, and make

• its concerns public, and

• to produce an annual report of its findings.

The FCA’s proposals work on a ‘comply or explain’ duty on firms, so that the firm must address the IGC’s concerns or explain to the IGC why it does not intend to do so. The FCA’s objective is for firms to take actions that will ensure the value for money of workplace personal pension schemes on an ongoing basis.

As an alternative to IGCs, the FCA proposes to allow firms with smaller and less complex QWPP schemes to establish a Governance Advisory Arrangement (GAA), as an alternative to an IGC. A GAA would involve the firm appointing another independent firm (a third party) to take on their IGC responsibilities. The third party may provide GAAs to multiple firms, with the potential for economies of scale and lower costs per firm.

Why the FCA is Consulting on IGCs

The UK has an aging society with many people not saving enough for their retirement. As part of the Government’s policy response to this challenge, automatic enrolment of employees into workplace pension schemes began in July 2012. Under automatic enrolment, employees may be enrolled into QWPP schemes without making any active choice about how their pension assets are invested. It is therefore important to ensure that QWPP schemes deliver the best possible value for money.

This consultation paper will be of interest to:

• Providers of workplace personal pension schemes, including personal pension schemes and stakeholder pension schemes which employers either use for automatic enrolment or otherwise make available to their employees

• Consumers who have workplace personal pensions and consumer groups seeking better protection for consumers with workplace personal pensions

• Employers and their advisers, in relation to the selection and ongoing monitoring of workplace personal pension schemes

• Fund managers and other third parties providing services to firms operating workplace personal pension schemes

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