The regulator has today launched a Consultation Paper on changes that may be needed to ensure workplace pensions scheme members get a better deal.
The launch follows a review which suggested some governance committees were “ineffective” in challenging firms to ensure value for money in workplace schemes.
Following the review the Consultation Paper has been brought forward.
The Consultation Paper CP20/9 looks at ways to make workplace pensions better value for money.
The watchdog says its proposals aim to make it easier for Independent Governance Committees (IGCs) and Governance Advisory Arrangements (GAAs) to compare the value for money of pension products and services.
This should enable them to be “more effective” in assessing value for pension scheme members.
IGCs oversee the value for money of workplace personal pensions provided by firms like life insurers and some SIPP operators.
They provide independent oversight of workplace personal pensions in accumulation and will oversee the investment pathway solutions that will have to be offered from 1 February 2021. IGCs act on behalf of consumers who are likely to be “uninvolved or less engaged” with their pension savings, says the FCA.
The FCA review found that:
- Some IGCs lack the necessary independence and were ineffective at challenging firms to ensure value for money for workplace pension scheme members
- Those IGCs which maintained independence from the firms whose pension schemes they had responsibility for delivered better outcomes for pension scheme members
- GAAs operated by third-party firms on behalf of pension providers were less effective at delivering meaningful improvements in value for money
- Over the period of the review (2017-2019) the FCA found there had been a “small reduction” in charges across all pension savings, although this has not been directly linked to IGCs and GAAs.
Megan Butler, FCA executive director of supervision - Investment, Wholesale and Specialists, said: “This Consultation Paper will help to ensure that pension scheme members are getting value for money.
“Our separate review into IGCs and GAAs lays out the key lessons that need to be learned to ensure that workplace pension holders get a fair deal.
“The FCA has carefully considered these findings and is asking firms that do not meet our requirements to make improvements.”
Overall, the FCA found that a number of IGCs were working well to provide value for money for their members however, a lack of consistency in the way they operate meant that members of some workplace pension schemes may not be receiving value for money.
The FCA has sent feedback letters to firms to ensure they make improvements to the way they work with their IGC or GAA.
The Consultation Paper has a deadline of 24 September and includes proposals for a framework for the annual IGC and GAA value for money assessment process, including a definition of value for money and three key elements of value for IGCs to use when conducting their assessments.
Keith Richards, chief executive of the Personal Finance Society, said: “We welcome the FCA’s focus on customer service as well as charges and investment performance, and agree wholeheartedly with the statement that, ‘We consider that the services provided, which include scheme administration and communication with scheme members, are an important part of the provider’s value for money offering.’
“However, we are concerned that levels of customer service, for example communicating the importance, benefits and availability of professional financial advice, are not given the same treatment in the consultation paper or the thematic review as charges.
“This may be because levels of charges are easier to measure and compare than levels of service but this greater focus on price does continue to undermine value . However, this does not mean that the effectiveness of communication is impossible to measure.
“For example the International Longevity Centre has developed an approach that measures outcomes for consumers who take advice, compared to those which do not take advice. A similar measurement of outcomes from information and other services could help IGCs to evaluate the quality of services more effectively.”