Governance bodies set up to protect 12 million pensioners are not doing their job, charity claims

Review into independent governance committees should be a 'wake-up call' for regulator, ShareAction says

Independent governance committees are not acting in the interest of pension-holders and to ensure they get the best possible value for money, ShareAction says (Getty)

A network of independent governance committees, established to represent the interests of 12 million UK pensioners, is failing to do its job, research by a charity promoting responsible investing has revealed.

Back in 2015, the Financial Conduct Authority introduced regulation requiring contract-based pension providers to appoint independent governance committees, or IGCs, to act in the interest of pension-holders and to ensure they are getting the best possible value for money.

The FCA at the time said that the UK had an “ageing society” and that many people lacked money for their retirement. The regulator said that, in this context, IGCs should help ensure that workplace personal pension schemes deliver value for money for members. IGCs, it said, have the responsibility to raise any concerns with the provider’s board and, if need be, escalate those concerns to the FCA.

It also introduced rules requiring IGCs to publish annual reports to increase transparency and encourage comparison between providers. But a study published on Saturday by ShareAction claims that many of those reports are “vague and offer only unsubstantiated claims that savers’ interests are being protected”.

“This research should be a major wake up call for the FCA, with its mandate to make markets work well so that consumers get a fair deal,” said Catherine Howarth, chief executive of ShareAction.

“IGCs were a good idea, but the FCA made the wrong call in abandoning indefinitely its promised review of their effectiveness,” she added.

When the FCA introduced the new rules, it said that it would conduct a review of their effectiveness in 2017, two years after implementation.

In 2016, the FCA said that it reviewed them jointly with the Department for Work and Pensions and that based on the conclusions it drew at the time, it said that it had decided to defer a further review planned for the following year.

Ms Howarth on Saturday said that she hopes the latest study will prompt the FCA to “refocus attention on the interests of UK pension savers who remain vulnerable in a market characterised by consumer detriment and information asymmetry”.

In response to the study, the FCA said that it “remains focused on ensuring consumers are protected”.

“Through work we have already undertaken, we found that overall IGCs are acting in accordance with their terms of reference, by influencing, supporting and advancing the significant reduction in costs and charges that have been achieved,” a spokesperson for the FCA said.

The spokesperson also said that the FCA was in the process of carrying out a number of other pieces of work which impact IGCs.

“For example, we recently published a discussion paper on non-workplace pensions highlighting the role that IGCs play in workplace pension schemes, and asking for views on whether independent governance could play a role in delivering fair outcomes for non-workplace customers. We are also currently considering what form of rule changes may be appropriate to address the law commission’s 2017 proposals on pension funds and social investment,” the spokesperson said.

Shadow pensions minister Jack Dromey welcomed the report. “As highlighted in the report, members of contract-based schemes, and of all other defined contribution, bear all of the investment risk and all of the costs and charges but are not fully informed about the nature of these costs. Quite simply, those saving for their retirement are kept in the dark,” he said.

“We are also calling for the immediate resumption of the Financial Conduct Authority’s dropped review of IGCs and demand that providers, who are in the main asset managers, hand over full details of all fees and transactions voluntarily to their IGC,” he added.

The ShareAction report ranks the quality and transparency of the IGC reports of 16 of the largest UK pension providers. Aviva tops the table for the best report, followed by Legal & General, Standard Life, Scottish Widows and Royal London.

Old Mutual Wealth and BlackRock’s IGCs tie for bottom spot, behind those at ReAssure and Zurich.

A spokesperson for Old Mutual Wealth said that it was reviewing the recommendations within the report.

“The role of the Independent Governance Committee is vitally important to ensure we deliver value for money for savers in workplace defined contribution pensions. IGCs are in relatively early days and we welcome commentary on how the clarity and transparency of their reporting can be improved,” the spokesperson added.

A spokesperson for BlackRock said that its IGC annual report discloses “all relevant information to scheme members and policyholders in a transparent and straightforward manner”.

The spokesperson added that in addition to the annual report, BlackRock “continuously updates scheme members and policyholders about the service, performance and costs for their life savings on its website, which we would argue is a better benchmark for transparency than the methodology used by ShareAction”.

“We welcome efforts to promote transparency and accountability and have engaged with ShareAction on its methodology. Despite our engagement, ShareAction has chosen to solely focus on a single annual written communication in the report,” the spokesperson added.

In its review of the individual reports, ShareAction said that some of them made “vague, high-level statements on provider performance and did not back them up with detail or data”.

The charity said that it felt it would be “hard for a consumer or consumer body to understand from these reports whether scheme member interests were being protected by the IGCs, and if scheme members were getting value for money from the various providers”.

In some cases it said that it also felt that the criteria established by IGCs would not be capable of capturing potential problems that members might experience.

Generally, it concluded that both IGCs and policymakers are able to do more to protect the interests of pensions. Mostly IGCs seem to have made “a good start in holding providers to account on the value they are offering”, it said, but it added that “it is not currently clear if customers of any given provider are receiving competitive returns and paying fair charges”.

It said that the onus was now on the FCA to issue further guidance. The FCA, it urged, should set a specific definition of value for money and issue “clear, comprehensive guidance on how to assess it”.

“The widely varied standards of assessment and reporting demonstrated by IGCs show that a more standardised approach is required,” it said.

The research comes on the back of a report issued by the Work and Pensions Select Committee earlier in February calling for urgent action over what it describes as an erupting pensions mis-selling scandal affecting 2,600 British Steel Pension Scheme (BSPS) members.

The MPs said that as a result of bad advice offered to those savers, £1.1bn worth of pensions were moved out of the company’s “gold-plated” defined-benefit scheme into riskier funds with high management fees.

The MPs said that the particular circumstances surrounding the BSPS “created perfect conditions for vultures to take advantage,” but that similar bad advice on defined-benefit pension transfers may be affecting tens of thousands of people’s retirement funds in schemes across the whole of the UK.