In the olden days, an employer wanting to provide a pension scheme set up a trust, appointed trustees and left them to get on with the job of looking after the interests of and communicating with the members.
Of course, those days started to die in the mid 1980’s after the introduction of personal pensions which didn’t require a trustee board, albeit that many employers did and still do operate a trust.
A few employers, having moved to what became known as a group personal pension (which have since and recently morphed into workplace personal pensions), set up governance committees. The role of the govcomm varied from employer to employer but most had a watching brief “keep an eye on our provider and make sure they are doing what they are supposed to do. If they don’t let us know and we might fire them.” The other pseudo trustee function they often had was to communicate with the members to make sure they understood the features and benefits of the scheme their employer had set up.
From April 2015 all insurers providing workplace personal pensions have had to establish an Independent Governance Committee (or IGC), or, for smaller less complex providers, an outsourced equivalent. The IGC roles is to consider whether the provider is giving value for money to the relevant policyholders and where they conclude not, to recommend what changes need to be made. This, sort of, replaces the principle function of the employer govcomm so are govcomms obsolete?
Employer govcomms have four really important functions to perform – and which only they can perform.
The first of these is to pass data up the line to the IGC.
IGCs will be assessing VFM in the context of what members themselves value. This means that the IGC will need data from or in respect of the members. Who better to provide this, at a group level, than a govcomm? They will be closer to the members and better placed to understand their generic needs.
The second is to pass communications down the line.
Similarly to the point above, govcomms will be better able to understand their members. This means that they will be better able to understand their comms needs: the language and the level of complexity. Govcomms will be able to shape comms to make them more usable for their particular members.
The third is to hold the IGC to account.
IGCs will operate under terms of reference agreed with the relevant insurer. The insurer will be tasked by the FCA to ensure their IGC operates properly. This means there is a vested interest in making the IGC work – but it is a conflicted interest. Govcomms can independently challenge IGCs to make sure they are kept “honest”.
The fourth, and arguably most important, function for govcomms is this.
IGCs will be empowered only to make recommendations. In the event that the insurer decides not to implement a recommendation the IGC can escalate to the FCA, the employer or the members but they cannot fire the insurer. The govcomm can. The govcomm can therefore address the key weakness in the IGC concept: the ability to remove a poor insurer.
IGCs are a significant step forward in the governance of WPPs and will improve member outcomes. They have weaknesses though. IGCs, assisted and challenged by employer govcomms, however, are a much stronger governance package.