Providers' pension monitoring committees under fire

ShareAction's report, Who Watches the Watchers? Transparency and Accountability in Workplace Pensions, published on Saturday (17 February), alleged a large number of independent governance committees were failing to achieve the key purpose for which they were created.

Basing its research on the annual reports published by the committees, as required by the regulator with a view to increasing transparency and encouraging comparison between providers, ShareAction found the committees had often made "vague" and "unsubstantiated claims" that savers' interests were being protected.

The Financial Conduct Authority (FCA) deferred its full review into the committees in May last year saying work it had carried out with the Department for Work & Pensions found the committees had been broadly effective at implementing the recommendations of a previous review.

Catherine Howarth, chief executive of ShareAction, said: "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. 

"Independent governance committees were a good idea but the FCA made the wrong call in abandoning indefinitely its promised review of their effectiveness."

Independent governance committees were established in 2015 to represent the interests of UK pension savers following a review by the Office of Fair Trading, which found lack of competition and poor governance at contract-based pension providers had led to consumer detriment, including overcharging.

The role of independent governance committees is to review whether savers are getting value for money from their schemes and to challenge pension providers to do better where necessary. 

The regulator is considering whether a similar requirement would be beneficial in the non-workplace pension space, as outlined in a discussion paper in early February.

The action group ranked the quality and transparency of the independent governance committee reports of 16 of the largest UK pension providers.

Aviva's independent governance committee (16 points) comes out on top of the ranking, with BlackRock's independent governance committee taking bottom place (6 points).

In the ranking, independent governance committee reports were scrutinised on defining and assessing value for money; investment strategy and performance; management charges and investment costs; member communications and engagement; member service and administration; and consideration of long-term investment risks and opportunities, such as environmental, social, and governance factors.

ShareAction said in a number of cases, independent governance committee reports provided insufficient information to enable savers to understand the value for money they were getting.

Almost a third of independent governance committee reports reviewed by the group (five out of 16) did not state how much savers were charged by the providers of their workplace pension provider (Aegon, BlackRock, Fidelity, Virgin and Zurich).

Almost half (or seven out of 16) did not report data on how well savers' investments were performing (Aegon, BlackRock, Fidelity, Old Mutual Wealth, Phoenix Life, Prudential and Zurich).

Under the independent governance committee regime established by the FCA, pension providers appoint all committee members who are then responsible for monitoring their performance. 

According to ShareAction only Royal London had a pension saver on its independent governance committee, while merely four out of 16 committees (Aegon, Prudential, Scottish Widows and Zurich ) had a member with experience of representing consumer interests.

Meanwhile, five out of 16 (Aviva, Royal London, Scottish Widows, Standard Life and Zurich) were found to have more independent members than the minimum legally required.

Rachel Haworth, senior policy officer at ShareAction and author of the report, said: "Savers in contract-based pension schemes saw real detriment before independent governance committees were introduced.

"Clear and comparable reporting is the only way independent governance committees can assure scheme members that these problems have been fixed. We expect to see independent governance committees, supported by the FCA, deliver this assurance in their future reports."

In response to the report's criticism, a spokesman for BlackRock said: "BlackRock’s independent governance committee annual report discloses all relevant information to scheme members and policyholders in a transparent and straightforward manner.

"Beyond the information detailed in the independent governance committee's 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."

Old Mutual Wealth and Zurich stated they would review the recommendations in the report.

A spokesman for Old Mutual Wealth said: "The role of the independent governance committee is vitally important to ensure we deliver value for money for savers in workplace defined contribution pensions.

"Independent governance committees are in relatively early days and we welcome commentary on how the clarity and transparency of their reporting can be improved."

A spokesman for Zurich added: "We are committed to ensuring our workplace customers receive excellent value for money.

"Our independent governance committee consists of a wholly independent committee, which exceeds the legal requirements, and includes members with extensive experience in representing consumer interests."

Virgin Money questioned the assumption only Royal London had a pension saver on its independent governance committee but said: "We recognise the importance of good member service and administration and will look at adding more detail, data and analysis on our performance in this regard."

Other providers included in ShareAction's report have been approached for comment.

carmen.reichman@ft.com