From 6 April 2015 all providers running workplace personal pension schemes (“WPPs”) will be required to have an Independent Governance Committee (“IGC”). Providers with smaller schemes will be required to establish a Governance Advisory Arrangement (“GAA”), which will have the same role as an IGC, but operated by a third party which is independent of the provider.
The role of an IGC is similar to the role of the trustee board of a defined benefit scheme. It will have a duty of care to members (both active and deferred) to act solely in their best interests, in particular to assess the ongoing value for money of the scheme. IGCs will have direct access to the provider’s senior body in order to operate effectively to ensure compliance. They will be able to challenge the board if necessary and suggest changes to be made. The FCA has been working in conjunction with the DWP and the Pensions Regulator to provide conclusive, final rules for IGCs which will set the minimum governance standards to be met. These rules have now been published.
All IGCs must comprise of at least five members, either individuals or corporates, the majority of whom must be independent of the provider, including the chair. The final rules make clear that IGCs must act in the best interest of all members, even those who became deferred before the rules come into force. Accordingly, this means that although IGCs do not have to cover independent personal pension schemes (“IPPs”), providers who do not currently distinguish between deferred members of WPPs and IPPs must now decide whether to identify only WPP deferred members (at great expense and with much difficulty, in many cases) or to extend the scope of their IGC to cover IPPs.
As mentioned above, one of the primary roles of an IGC will be assessing the ongoing value for money of the scheme. This is a requirement for which there is no precedent, and currently no guidelines have been published detailing how IGCs should go about it. As the approach will need to be fairly consistent across all providers, the FCA will hold a forum on this issue shortly after the requirements come into force. Whether FCA guidance will be published after this however, is currently unknown.
Whatever method IGCs adopt to discharge this burden, if they do have concerns about the value for money of the scheme, they will be able to raise this with the provider’s board. The board will then need to take reasonable steps to address these concerns, or to explain to the IGC in writing why they do not intend to do so. In the event an IGC is unsatisfied with the provider’s response, it then has the option to raise its concerns with the FCA, the relevant scheme members and employers and (providing it has first notified the FCA), make its concerns public.
Most providers having already appointed a chair of their IGC and while currently appointing the other members, they will also have to:
- Decide on and prepare a budget for their IGC
- Make the necessary arrangements to provide all the information IGCs may require
- Agree terms of reference for their IGC, who the main contact will be and the process by which concerns will be escalated to the provider’s board
- Prepare contractual appointment documents or update existing employment arrangements for IGC members
- Establish appropriate administrative support for their IGC