The introduction of IGCs was agreed by the ABI as part of a deal with the Office of Fair Trading that fended off insurers being referred to a more serious investigation.
The main purpose of IGCs, as envisaged in this document is to “act in the interests of members in assessing and raising concerns about value for money“.
Assessing value for money involves weighing the quality of the scheme against its cost to members”.
This seems a much simpler formulation than the 31 characteristics and 6 principles on which the governance of DC occupational schemes depends.
Indeed the FCA narrow the “key elements of scheme quality” down to
- the design and execution of its investment strategy
- administration of the scheme, including communication to members and
- governance of the scheme including regular investigation of its value for money
For the FCA, value for money is central to governance and key to the member’s interest. There seems to be an acceptance here that while governance of administration, communications and investment strategy is static, it’s the investigation of value for money – that is where the IGCs contribute on-going value .
So what does an assessment of value for money boil down to in practice?
The Quality of the Scheme can be assessed against just three key services –
This could be described as what a DC scheme adds as value. An IGC that feels comfortable that the contract based scheme(s) it oversees carry out these duties satisfactorily can conclude that it is offering value.
But value can easily be eroded and a large section of the paper deals with its cost to members. (the money in a value for money formulation).
The consultation does not deal in depth with the methodology by which IGCs assess “costs and charges” but it makes it clear that there will be rules that govern the assessment, so that there can be
“public disclosure by firms of their IGC’s assessments in the IGC Chair’s annual report, to enable IGCs to compare their assessments with those of other IGCs”
In a recent comment on an accountancy website, a request was made that
What would be really useful ….is a table comparing the fixed and variable costs of the major pension providers
The value of the FCA’s proposals lies in their simplicity which allows requests such as those of this account to be met.
If we can have a simple formulation for “value”, a simple formulation for “money” and a way of comparing value for money between providers, then people can take informed choices about what scheme to use and whether to keep using that scheme or switch to another.
This will be a great help in making employers to be better buyers, for as the OFT have commented.