Independent Governance Committees

Find out more about our rules for workplace personal pension schemes and Independent Governance Committees (IGCs).

Our rules require firms that operate workplace personal pension schemes to establish and maintain Independent Governance Committees (IGCs).

IGCs have a duty to scrutinise the value for money of the provider’s workplace personal pension schemes, taking into account transaction costs, raising concerns and making recommendations to the provider’s board as appropriate. IGCs must:

  • act solely in the interests of relevant scheme members
  • act independently of the provider

An IGC has a minimum of five members, the majority of whom must be independent, including an independent chair.

Why we introduced IGCs

The UK has an ageing society with many people not saving enough for their retirement.  In 2013, the Office of Fair Trading conducted a market study of workplace pension schemes. The study revealed competition problems in the market, including a very weak buyer side and the potential for conflicts of interest. It covered both trust and contract-based schemes, since employers can choose either type of scheme for their employees.

Automatic enrolment means that it is even more important to ensure that workplace pension schemes deliver value for money. Most employee pension savers are enrolled into the default fund of their employer’s pension scheme. Many of these people will not have made any active choice about how their pension savings are invested and may be on low incomes.

Our rules requiring IGCs came into force in April 2015. IGCs have a role similar to trustee boards and are a key part of a range of protections we introduced to ensure that workplace personal pension schemes deliver value for money for members. Other protections include the charge cap on default funds and bans on certain types of charging practice.

We work closely with the Department of Work and Pensions (DWP) and The Pensions Regulator on pension issues. The DWP introduced related measures to improve the value for money of trust based workplace pension schemes.

What IGCs must do

Our rules give IGCs clear duties and strong powers to challenge providers on value for money issues.

These rules require that an IGC must:

  • assess the ongoing value for money of workplace personal pension schemes
  • act solely in the interests of relevant scheme members
  • raise any concerns with the provider’s board
  • escalate their concerns to us, if necessary
  • report annually on what they have done

IGCs have a duty to focus in particular on the default funds of the schemes operated by their provider.

What providers must do

Providers of workplace personal pension schemes must establish and maintain an effective and independent IGC. Providers must support IGC members with the information and resources that they need to fulfil their duties.

Our rules require that the provider must:

  • recruit independent IGC members through an open and transparent process
  • ensure that the IGC has sufficient collective expertise and experience
  • ensure that member views can be directly represented to the IGC
  • provide the IGC with the information and resources it needs
  • take reasonable steps to address any concerns raised by the IGC
  • explain in writing why the provider has decided to depart in any material way from any advice or recommendations made by the IGC.

GAAs as an alternative

Our rules allow providers operating smaller and less complex schemes to establish a Governance Advisory Arrangement (GAA) with a third party, as an alternative to an IGC. While a GAA may cost less to operate, the desired outcome remains the same, which is to ensure that relevant schemes deliver value for money for members.

Review of the effectiveness of IGCs

In our 2016/17 Business Plan we said we would be conducting a review of the effectiveness of IGCs. During 2016 we conducted, jointly with the Department for Work and Pensions, a review of industry progress against the Independent Project Board’s recommendations on workplace pensions. In December 2016, we published our findings report.

It was broadly supportive of the effectiveness of IGCs in implementing the Independent Project Board’s recommendations. Given this position we have decided to defer the full IGC review for the present to allow us to focus on other priorities. These priorities have been set out in our 2017/18 Business Plan.

Further information