IGCs alone are no substitute for member-nominated trustees
Independent Governance Committees (IGCs) are tasked with representing members of contract-based schemes’ best interests. They will play a vital role after April 2015 when they are expected to become law – protecting consumers who are not necessarily interested in pensions.
The proposals are for a minimum of five people, three of whom, including the chair, must be independent from the provider. The independent experts can be appointed by the provider.
IGCs are expected to act independently of the provider and ensure members get good value for money.
However, there is no requirement for representation of members or employers on an IGC, meaning that there is still a clear role for trustee boards or employer-based governance committees to ensure that schemes meet members’ needs.
And, while the principle may be worthy, the pensions industry has warned that the proposals only give IGCs power to look after the best interests of tomorrow’s members of contract-based defined contribution schemes. IGCs are powerless to look after the best interests of the existing members of such schemes.
There is no requirement for representation of members or employers on an IGC”
The proposed rules do not, for example, empower IGCs to move existing members’ savings from old-style, under-performing investments into new, improved default funds without their express consent.
Securing that consent, in a world where members often don’t understand what they are invested in, could be an administrative nightmare.
And, while there is pressure on the Financial Conduct Authority and Department for Work and Pensions to empower IGCs to act in members’ best interests when they lack the understanding to act themselves, the creation of a contractual ‘safe harbour’ – the ability to make changes within the contract – isn’t in the plans.
As a result, there is still no substitute for an employer taking an active interest in its own pension scheme, the way it is run and whether it meets the needs of its members.
Independent Governance Committees: Timeline
February 2014: The Office for Fair Trading concluded an independent enquiry into whether members of DC pension schemes are getting value for money, and recommended a range of measures. One of those was the introduction of Independent Governance Committees.
August – October 2014: The Financial Conduct Authority opened a consultation on its proposed rules for IGC s.
February 2015: The FCA publishes the final rules specifying the dos and don’ts for IGC s.
April 2015: The Department for Work and Pensions has specified that providers must be operating IGC s by April 2015.
Reward and Aon Employee Benefits have published a need-to-know guide to the pension freedoms - download the guide here