Concerns raised over Independent Project Board

The Independent Project Board, created to oversee the audit of high-charging legacy defined contribution schemes, published an update last week. But far from allaying fears, the interim report has merely reawakened old concerns.

Nearly a year ago the Office of Fair Trading (OFT) published the findings of its report into the DC pensions market. It shied away from recommending a charge cap but that is what the industry got a few months later.

The OFT also highlighted the disastrous impact of high charges on the size of pension pots – in particular those set up before 2001. It found roughly £30bn of savings were tied-up in such arrangements, now hopelessly out-of-date compared to today’s new breed of auto-enrolment schemes.

Despite having grounds to refer the legacy scheme problem to the Competition Commission, the OFT decided to let the Association of British Insurers (ABI) and an Independent Project Board (IPB) audit these schemes. When the IPB members were announced, Clive Maxwell, OFT chief executive, warned: “It is also important, particularly given that automatic enrolment is already under way, that any recommendations from the IPB are implemented quickly”.

I think the report will sink like a stone

However, responsible investment charity ShareAction has criticised the review for being secretive, conflicted and ineffective. “It’s a bit worrying that it’s the ABI in charge of conducting the audit”, senior researcher Camilla de Ste Croix told Pensions Insight, “this report is very detailed about exactly what information will be collected, but then what?

“It seems like they’re not committed to do anything, I think the report will sink like a stone.”

De Ste Croix is right to say a lot remains unanswered. The update reveals post-2006 schemes with member borne charges over 1% will also be investigated but that the final report – expected in December 2014 – will “not contain any firm-specific references or recommendations”.

Carol Sergeant, Chair of the Independent Project Board said “the final report will also include any IPB recommendations for industry-level actions that may be needed to address  in-scope schemes assessed as having high charges taking into account any relevant benefits.”

But it appears it will be up to Independent Governance Committees (another product of the OFT report) and trustee boards, rather than the government or regulators, to decide whether to change charging structures they think are poor value.

You could say the ABI was filibustering

The lack of a promise of direct action on high-charging legacy schemes has led some to question whether those with an interest in maintaining such schemes are simply kicking the issue into the long grass.

Henry Tapper, direct at First Actuarial, commented: “To use a parliamentary term you could say the ABI was filibustering – talking the idea out of existence”. Tapper agreed with ShareAction that the composition of the IPB is not ideal – “everyone on the board has skin in the game”.

With so much reform to pass through parliament between now and the general election in May 2015, there is a very real possibility legacy schemes will escape proper scrutiny. However, the OFT will have more than a passing interest in seeing action resulting from the audit, otherwise its decision to pass on a Competition Commission review will make it look rather short-sighted.

Independent Project Board members

Carol Sergeant, Independent Chair

Charlotte Clark, Department for Work and Pensions

Ed Smith, Competition and Markets Authority

Nick Poyntz-Wright, Financial Conduct Authority

Andrew Warwick-Thompson, The Pensions Regulator

Doug Taylor, Independent Consumer Expert

Michelle Cracknell, The Pensions Advisory Service

Joanne Segars, the National Association of Pension Funds Limited

David Hare, Institute and Faculty of Actuaries

Otto Thoresen, Association of British Insurers