Opinion  

Important committee changes going under the radar

Richard Butcher

I don’t want to be melodramatic about it, but the world of workplace personal pensions or what used to be known as group personal pensions, changed dramatically, radically and almost unnoticed on 6 April.

The immediate future now holds significantly more uncertainty for both insurers and advisors. Why? Read on.

Back in 2013, the Office of Fair Trading produced a report concluding the buyer side in workplace personal pensions was very weak (the buyer being the individual policyholder). In an attempt to avert an investigation by the Monopolies and Mergers Commission, the insurers agreed to introduce an independent challenge into their processes – with the aim it would improve policyholder value for money.

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The Financial Conduct Authority duly then produced conducts of business which set out how Independent Governance Committees should operate.

The first, and in some cases, subsequent, IGC meetings have now taken place and the scale and scope of their job is starting to become apparent. There are some interesting challenges, including a few that may impact on advisors.

The first and most obvious of these is the impact on historic commission payments and future adviser charges.

The IGC is charged with considering value for money for relevant policyholders from relevant schemes. In summary, this includes active and deferred members of GPPs where an employer deducted contributions direct from pay. Value for money is necessarily a comparison of cost versus benefit.

The IGC remit is not restricted to the benefits provided by the insurer, but instead to anything if it has an impact on costs. This means that to the extent adviser payments impact on costs (as they do) the IGC will need to consider the value of the services delivered by the adviser given that payment.

While it’s clear that this will have to happen, it’s not clear how it will happen or the implication of a conclusion that there hasn’t been value for money.

The second challenge lies in the default investment strategy. A specific duty of the IGC will be to ensure that the default has been designed and executed in the interests of the relevant policyholders. If they conclude that it has not, they will be compelled to recommend a change.

At the very least this means IGCs will be challenging advisors on default design and, at the extreme, if they disagree with their conclusion, it could put them at odds with advisors.

A more fundamental challenge to all of the above is what does value for money mean and how do you measure it. Clearly, the conclusion in this respect impacts on all of the other deliberations of the IGC and while it is hoped, not least by the FCA, that this will be done in a consistent way from insurer to insurer, there is no guarantee.

In other words, different IGCs could challenge advisors on the same or different issues in the same or different ways.