FCA needs to get a grip on pension governance to protect nearly 12 million savers
A new study undertaken by ShareAction finds that a large number of independent governance committees (IGCs), established by law in 2015 to represent the interests of UK pension savers, are failing to achieve a key purpose for which they were created.
In 2015, the Financial Conduct Authority (FCA) required contract-based pension providers to appoint IGCs to address poor consumer outcomes in these pension schemes and to act as a champion of savers’ interests. The role of IGCs is to review whether savers are getting value for money from their schemes and to challenge pension providers to do better where necessary.
IGCs were established following a review by the Office of Fair Trading in 2013, which found a lack of competition and poor governance at contract-based pension providers leading to consumer detriment, including routine overcharging of savers.
The FCA requires IGCs to publish annual reports to increase transparency and encourage comparison between providers. In May last year the FCA indefinitely abandoned its review of the effectiveness of these committees.
As part of ShareAction’s programme of work to examine pension provision in the UK, this new report, Who Watches the Watchers? Transparency and Accountability in Workplace Pensions, ranks the quality and transparency of the IGC reports of 16 of the largest UK pension providers.
Aviva’s IGC (16 points) comes out on top of the ranking, with BlackRock’s IGC taking bottom place (6 points).
| IGC | Score (out of 19)* | Bonus points for innovation | Total |
| Aviva | 15 | 1 | 16 |
| Legal & General | 14 | 1 | 15 |
| Standard Life | 14 | 1 | 15 |
| Scottish Widows | 13 | 0 | 13 |
| Royal London | 11 | 1 | 12 |
| B&CE | 11 | 0 | 11 |
| Prudential | 10 | 1 | 11 |
| Abbey Life | 9 | 0 | 9 |
| Aegon | 9 | 0 | 9 |
| Phoenix Life | 9 | 0 | 9 |
| Fidelity | 8 | 0 | 8 |
| Virgin Money | 7 | 1 | 8 |
| Zurich | 7 | 1 | 8 |
| ReAssure | 7 | 0 | 7 |
| BlackRock | 6 | 0 | 6 |
| Old Mutual Wealth | 6 | 0 | 6 |
Despite examples of innovation by some IGCs, ShareAction’s research finds that many IGC reports are vague and offer only unsubstantiated claims that savers’ interests are being protected. In a number of cases, IGC reports provide insufficient information to enable savers to understand the value for money they are getting. Nearly a third of IGC reports reviewed by ShareAction (five out of 16) did not state how much savers are charged by the providers of their workplace pension provider (Aegon, BlackRock, Fidelity, Virgin and Zurich IGCs). Nearly 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 IGCs).
Under the IGC regime established by the FCA, pension providers appoint all committee members on the IGC that is then responsible for monitoring their performance as a provider. ShareAction finds that:
- Only Royal London has a pension saver on its IGC.
- Only four out of 16 IGCs (Aegon, Prudential, Scottish Widows and Zurich IGCs) have an IGC member with experience of representing consumer interests.
- Only five out of 16 IGCs (Aviva, Royal London, Scottish Widows, Standard Life and Zurich IGCs) have more independent members than the minimum legally required.
Catherine Howarth, Chief Executive of ShareAction, says: “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. IGCs were a good idea but the FCA made the wrong call in abandoning indefinitely its promised review of their effectiveness. We hope this study will prompt the FCA to refocus attention on the interests of UK pension savers who remain vulnerable in a market characterised by consumer detriment and information asymmetry.”
Rachel Haworth, Senior Policy Officer at ShareAction and author of the report, says: “Savers in contract-based pension schemes saw real detriment before IGCs were introduced. Clear and comparable reporting is the only way IGCs can assure scheme members that these problems have been fixed. We expect to see IGCs, supported by the FCA, deliver this assurance in their future reports.”
Hannah Gilbert, a deferred saver with Aegon, says: “After years of trying to engage with Aegon about my pension and not getting anywhere, reading my IGC report was the final nail in the coffin. There were two big issues: 1) There’s no comparison between providers’ performance – how do I know if I’m getting a good deal? 2) Also, how would I ever find out about this body that is meant to protect my interests? There was no mention of it in their communications or annual statement. It seems odd that it is on their corporate services webpage not the customer-facing websites.”
Only two IGCs (Aviva and Legal & General) referred to investment-related environmental, social and governance (ESG) risks and opportunities in their reports. Since publication of these reports, the Law Commission has recommended that IGCs should be required to report on ESG factors. However, the FCA is yet to commit to action on this.
Leila Mimmack, a saver with Aviva, says: “I’m glad that Aviva’s IGC was one of only two that said it takes environmental risks like climate change seriously. Whether it actually does or not is another issue! I would have welcomed some real-world examples in the report of how it’s actually taking account of this long-term risk when it’s investing my money. Not bad but way more to do!”
In addition, ShareAction analyses the accessibility of the committees’ reports to savers and the majority were found to be as difficult to read as the Harvard Law Review or the works of William Shakespeare, according to an online assessment tool. Only one full report (Phoenix Life) scored highly enough to be assessed as appropriate for consumers – equivalent to the BBC news website.