TLAs, the FCA, IGCs & TCF. WTF?



This blog is by Ralph Frank


The financial services industry excels at producing Three Letter Acronyms (“TLAs”). One TLA that is likely to become an established part of pension lexicon is ‘IGC’. Independent Governance Committees (“IGCs”) are governance bodies that are intended to protect the interests of workplace personal pension scheme members from potentially harmful action by workplace personal pension scheme providers. The Financial Conduct Authority (“FCA”) is currently consulting on rules that will require providers to facilitate the set up and maintain the ongoing operation of these free-standing IGCs.

The mandatory establishment of IGCs was agreed between the Office of Fair Trading (“OFT”), the Department for Work and Pensions (“DWP”) and the Association of British Insurers (“ABI”). The agreement followed from the OFT’s ‘Defined contribution workplace pension market study’ published in September 2013. The OFT’s Study found that “the buyer side of the DC workplace pensions market is one of the weakest that the OFT has analysed in recent years”. A consequence of this weakness is that many members of workplace personal pension schemes have been exposed to the risks of excessive charges and low quality services, the combination thereof resulting in poor value for money. These risks are intended to be addressed by the fact that “IGCs are proposed to act in the interests of relevant scheme members by challenging firms on the value for money of workplace personal pension schemes”.

Workplace personal pension scheme members seem to be uniquely exposed to the risks of excessive charges and low quality services posed by providers. These same providers have been bound by the FCA’s rules around Treating Customers Fairly (“TCF”) since 2006 when dealing with retail customers.
• The issue of costs is addressed, to a degree, by TCF Outcome 1 that requires that “consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture”. The current Consultation Paper states that “to date, the firms providing and administering pension schemes may have lacked any strong incentive to negotiate down the direct and indirect costs of transactions and other activities in managing and investing pension assets”. How can the latter mind-set be consistent with the former requirement or do the affected pension providers have split institutional personalities?
• Quality of service is addressed in TCF Outcome 5 that requires that “…the associated service is of an acceptable standard and as they have been led to expect”. This requirement too seems at odds with the OFT’s assessment of delivery in the workplace personal pension scheme market serviced by many of the same providers.

A more detailed insight into historic practices and charges in the workplace personal pension scheme market will likely emerge as the Independent Project Board (“IPB”), established following the OFT’s Study, concludes its audit of legacy schemes. The IPB published a progress update in July 2014 and expects to produce its final report in December 2014.

The introduction of IGCs is certainly a positive development, for savers in workplace personal pension schemes at a minimum, if not a negative comment on the industry’s conduct. The outcome of the current consultation will determine the powers and reach of these IGCs. The real impact of the IGCs will, however, only be possible to assess once they are live.

The 2014 Edelman Trust Barometer found that financial services is the least trusted major industry, with a score of 48% globally (technology is the highest at 79%). Trust in UK financial services is even lower than the global average, coming in at 37%. Edelman found that 64% of the ‘informed public’ favours an increase in the regulation of UK financial services. How about the industry seizing the initiative and pro-actively doing a better job for our customers? No number of TLAs will help build trust in the absence of an improvement in conduct towards customers. Those who think the status quo is acceptable, Who’re They Fooling?

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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