The Financial Conduct Authority has begun a consultation on proposals for rules which would require providers of workplace personal pension (and stakeholder) schemes, such as insurers, to set up and maintain independent governance committees ("IGCs"), which would operate independently of the provider, and would have a duty to act in the interests of scheme members.
The proposals arose following a 2013 report by the Office of Fair Trading on defined contribution workplace pension schemes, which identified weaknesses in the buyers' side of the market for such schemes. It found that employers made many of the key decisions regarding such schemes, but did not always have the capability or incentive to ensure that the members would receive value for money in the long term. The proposals would require IGCs to be set up by the workplace pension providers, and for the provider to ensure that the IGC provides a "credible and effective challenge on the value for money" of workplace schemes. The IGCs would:
- act in the interests of members;
- assess the value for money of the provider's schemes and raise any concerns with the provider's board, which would have a "comply or explain" duty in relation to concerns;
- escalate any concerns to the FCA as necessary, alert members and employers, and make concerns public; and
- produce an annual report of their findings.
Smaller providers would have the option of establishing a "governance advisory arrangement" as an alternative. This would require an independent third party to be appointed by the provider to take on IGC responsibilities.
The consultation will continue until 10 October 2014, with the new rules being published in January 2015, and coming into force in April 2015. The full consultation document, which includes a draft of the proposed rules, can be found by clicking here.