The Financial Conduct Authority (FCA) has strengthened expectations it will ask independent governance committees (IGC) to scrutinise providers’ drawdown arrangements.
In its response to the government’s paper on pension funds environmental, social and governance (ESG) investment risks, the watchdog said that consultation on the remit of IGC’s will be published in the first quarter of 2019.
Besides ESG considerations, this will include recommendations from the FCA’s retirement outcomes review – which is due to be published until the end of June – “including on potentially making IGCs responsible for ensuring that decumulation products provide value for money,” it said.
The watchdog will also “explore whether competition is operating effectively in the interests of non-workplace pension customers”.
Extending the IGC’s remit to scrutinise drawdown was already mentioned in the regulator retirement outcomes review interim report.
Consulting in the first quarter of 2019 will allow it to consult on a single package of rule changes, including other possible extensions to the remit of IGCs.
According to Tom McPhail, head of policy at Hargreaves Lansdown, the comment from the FCA “looks like a pretty strong steer that’s what we’ll see when the retirement outcomes review paper is published”.
He said: “Such a move would also make a lot of sense. We’re expecting the FCA to ask providers to deliver simplified pathways to help their non-advised members transition from work to retirement; if you’re doing that then it also makes sense to build in a layer of independent governance to oversee how commercial companies do actually look after their customers through this process.”
The governance of decumulation is a “pressing issue,” given some of the difficulties associated with decumulating from defined contributions schemes without an annuity, according to the Pensions and Lifetime Savings Association (PLSA).
In its response to the FCA and The Pensions Regulator (TPR) paper on their joint regulatory approach, the trade body argued that if there is “a growing understanding of how to assess value for money in accumulation, the same is not true of decumulation”.
It said: “This is especially important as members’ funds are at their largest at the transition point and members are most exposed to detriment at this time.”
The PLSA said that both regulators “will need to consider how responsibility for decumulation is split between the two regulators and the principles that should underpin regulation in each sector”.