Aegon highlights concerns with IGC proposals in FCA consultation

Aegon pensions director, Steven Cameron, has highlighted concerns with proposed responsibilities for Independent Governance Committees (IGCs) in the Financial Conduct Authority’s (FCA’s) Driving value for money in pensions consultation.

Specifically, Cameron warned that the proposal for IGCs to carry out comparisons at individual employer level and to inform employers where they believe better value for money may be accessible elsewhere was “not realistic”.

He noted that the change would involve “significant complexity and huge extra cost” if it was agreed to and employee benefit consultants and corporate advisers would be better placed to shoulder the responsibility.

The FCA is proposing introducing a standardised definition of value for money, which would not just include costs and charges but also “delivered and expected” investment performance and quality of services, such as communications.

“We fully agree with the FCA that value for money in workplace pensions goes well beyond simply low costs and charges,” said Cameron.

“Value should be judged in terms of delivering good member outcomes which in turn relies on schemes offering appropriate, well performing investment funds and truly engaging members so they can make the most of their pension and plan their retirement.”

Cameron added that the comparisons and benchmarks for value for money would need careful design to achieve their aims.

“With value for money being so multi-dimensional, comparisons between offerings need to be handled carefully,” he added.

“For any comparison or benchmark to be helpful, it must include the key elements that improve member outcomes, objectively comparing like for like, while avoiding scope for misinterpretation. A poorly designed, incomplete or subjective approach could do more harm than good.”

Cameron noted that whilst the variety of charges and default funds offered by providers created challenges in ‘like for like’ comparisons, broad benchmarking “may be feasible” based on categories of employers with similar membership profiles.

“However, the consultation suggests IGCs might in future be asked to go well beyond this to carry out comparisons at individual employer level and inform an employer directly where they believe better value for money may be available elsewhere,” he continued.

“We do not believe this level of comparison is realistic for IGC – it would involve significant complexity and huge extra cost.

“Selecting or reviewing the best scheme for a particular employer’s workforce is the role of employee benefit consultants and corporate advisers who have the skills and processes in place to do this.”

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