IGC plans slammed by shareholder pressure group

Independent governance committees will fail to tackle rip-off charges and conflicts of interest in contract-based pensions warns pressure group ShareAction.

ShareAction, which describes itself as the watchdog for pension fund governance, is calling on the Financial Conduct Authority to strengthen its proposals for independent governance committees (IGCs) for contract-based pension schemes, arguing the current proposals will amount to a rubber-stamp for rip-off charges. 

The body warns that while the proposed committees will have five members, two employees of the provider itself and three ‘independent experts’, the fact that they are appointed by the provider and will not, unlike trustee boards, necessarily include employer and employee representatives, means their independence is compromised.

ShareAction proposes that a third of IGC members should be elected by scheme members or appointed by representative organisations such as unions and a further further third should be elected by employers or appointed by employer organisations. 

ShareAction is also concerned at the duty placed on IGC. IGCs will have ‘a duty to act in the interests of relevant scheme members’ but they will not have a duty to prioritise members’ interests, even in a conflict-of-interest situation. ShareAction argues this is significantly weaker than the fiduciary duty applying to trustees in trust-based schemes. If employees of the provider can sit on an IGC there is a clear conflict between their duty to the firm’s shareholders and their duty to savers, it argues.

The organisation is also concerned that while IGCs will look at value for money but will have no role in scrutinising communications between the provider and members. IGCs will have no requirement to look at quality of administration, unlike trustee boards or to look at the Responsible Investment and stewardship practices of the provider.

It also wants IGC members to be drawn from a wider pool of candidates to encourage greater diversity.

ShareAction chief executive Catherine Howarth says: “The use of the word ‘independent’ in these IGCs is a misnomer. Pension providers will get to pick who sits on these committees, which will lack any element of real accountability to members. It’s also a missed opportunity that IGCs won’t be required to scrutinise the quality of communications, scheme administration, or stewardship practices of contract-based schemes, and they’ll lack much needed diversity in their composition. These proposals are a weak solution to the widespread problem of overcharging and conflicts of interest in contract-based schemes. We’re looking to the FCA to promote governance arrangements that will deliver meaningful protection to UK savers.”