Expanding the remit of Independent Governance Committees (IGCs) to cover drawdown investment pathways risks loading extra costs on SIPP customers for little discernible benefit, says AJ Bell in its response to the FCA consultation which closed to responses on Monday.
Currently, IGCs oversee the value for money of workplace pensions where the employer pays in for 2 or more members, whether provided by a life insurer or a SIPP operator.
The existing arrangements are designed to protect primarily disengaged members who are ‘defaulted’ into an investment solution via automatic enrolment when they are saving for retirement (the so-called ‘accumulation phase’).
The FCA consultation (CP19/15), proposes a significant extension of IGCs’ scope in two areas:
• a new duty for IGCs to report on the provider’s policies on environmental, social and governance (ESG) issues, consumer concerns and stewardship for the products that IGCs oversee;
• a new duty for IGCs to oversee the value for money of investment pathway solutions for pension drawdown.
Tom Selby, senior analyst at AJ Bell, comments:
“Extending the remit of IGCs to cover investment pathways and ESG issues, while undoubtedly well-intentioned, risks increasing costs on customers and replicating work already carried out by firms under their existing regulatory obligations. We do not believe the benefits of such a move would outweigh the costs.
“This is particularly the case in relation to SIPPs. Given customers make an active choice to invest via a SIPP and are therefore much more likely to be engaged with their investment choices, demand for pathways solutions among this group is likely to be relatively low.
“If the pool of customers that use pathways is relatively small, the per-customer cost of introducing IGCs for them will be high. In reality these costs would be subsidised at least in part by customers not using pathways who would not be in a position to receive any benefit that might arise.
“Instead we believe it should be the role of the firm to ensure investment solutions offered to members are suitable. In our view the obligations placed on providers and senior managers by existing and planned FCA regulation should be sufficient to achieve the outcomes the FCA are seeking.
“AJ Bell already has in place an investment committee with a number of independent, non-executive members to provide oversight on matters such as ESG, member concerns, stewardship and value-for-money. An IGC would therefore risk duplicating, either in full or significant part, governance arrangements that are already in place.”