The Financial Conduct Authority has told chief executives of life insurance companies to provide written confirmation to them when they have set up an independent governance committee, following its recently published policy statement.
Earlier this month, the regulator confirmed that the committees will become mandatory from pension freedom day on 6 April, with providers having to ensure schemes are good value for money - keeping tabs on exit charges and other fees - and offer the full suite of retirement options.
In a ‘Dear CEO’ letter, Caroline Gardner, head of the life insurance department in the FCA’s supervision division, set out the new responsibilities for firms that operate group personal pension schemes or group stakeholder pension schemes.
“These rules seek to ensure that firms set up IGCs that are independent and effective, providing IGC members with the information and resources to enable them to assess the ongoing value for money delivered by relevant schemes,” she stated.
The letter mentioned that firms operating smaller and less complex schemes may choose to establish a Governance Advisory Arrangement (GAA) with a third party, as an alternative to an IGC.
Ms Gardner also requested that where applicable, the FCA would like providers to provide written confirmation that either an IGC or a GAA has been set up, or whether plans are in place to set this up in advance of the requirement.
She added that an event will be hosted for all IGC chairs and representatives of third parties providing GAAs on 30 March.
From 6 April, firms that operate workplace personal pension schemes will be required to establish an IGC with at least five members, which will have a clear duty to act independently of the firm. They will also be able to report non-compliance directly to the regulator.
This provision comes in the wake of reports showing many schemes, in particular so-called ‘zombie’ schemes no longer open to new business, may not offer the full suite of new freedoms from April.
The committees are a “key part” of the improvements in workplace pensions governance, the regulator says, with their role being to represent the interests of scheme members in assessing the value for money of pension schemes.
In particular, the FCA states they will “initially” take up the “challenges” coming out of an Office of Fair Trading audit which cited rip off charges being applied to thousands of pension savers and to provide oversight of the subsequently ordered ‘sampling’ exercise.
IGCs will be expected to review exit fees as part of their general review of charging structures and levels of charges, and make recommendations where they consider that charges are too high.
They will want in the future to consider value for money for scheme members in decumulation following new pension freedoms, which the FCA says it will consider making “a requirement once IGCs have their immediate priorities in hand”.
The regulator added that an IGC may recommend to the provider that it should consider decumulation and retirement income options, in the interests of relevant scheme members, and, if the provider refuses to support this, may escalate that refusal to the FCA.