This policy statement sets out our final rules to extend the remit of IGCs, with new duties in 2 areas. Where we say IGCs we mean Governance Advisory Arrangements (GAAs) as well. A GAA is a proportionate alternative to an IGC for firms with a smaller number of relevant customers and less complex schemes.
What we are changing
IGCs currently provide independent oversight of the value for money of workplace personal pensions in accumulation, ie before pension savings are accessed.
Our final rules extend the remit of IGCs, with:
- a new duty for IGCs to consider and report on their firm’s policies on environmental, social and governance (ESG) issues, member 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 (pathway solutions)
This policy statement also includes related guidance for providers of pension products and providers of investment-based life insurance products.
Why we are making changes
We aim to protect consumers from investments that may be unsuitable because of ESG risks, make sure that consumer concerns are taken into account, and encourage good stewardship of investments.
We also want pathway solutions that deliver value for money for consumers. That means costs and charges that are good value relative to the quality of the pathway solution and associated services, and a pathway solution that is appropriate for the pathway objective and the characteristics of the consumers likely to be using it.
Who this applies to
The new rules and guidance will mainly affect:
- firms that intend to provide pathway solutions and firms that provide workplace personal pensions
- IGCs and GAAs
- third party firms that provide GAAs or are considering whether to provide GAAs
- consumer representative groups with an interest in ESG issues and pensions
- all firms that provide pension products and all life insurers that provide investment-based life insurance products
The rules will also be relevant to stakeholders with an interest in pensions and retirement issues, including:
- individuals and firms providing advice and information in this area
- distributors of financial products, in particular retirement income products
- trade bodies representing financial services firms
- charities and other organisations with an interest in the ageing population and financial services
Consumers will also be affected by the rules.
Background to the new IGC duties
Our rules on ESG issues, member concerns, and stewardship address recommendations made by the Law Commission in its June 2017 report on Pension Funds and Social Investment. In some respects, our rules go further.
Our rules on value for money of pathway solutions are the final part of our package of measures to improve outcomes for non-advised consumers accessing their pension savings through drawdown. This package of measures addresses failings identified in our Retirement Outcomes Review. In July 2019, we made changes to our rules and guidance (PS19/21) to require drawdown providers to offer investment pathways to non-advised consumers entering drawdown. We said that we intended to extend the remit of IGCs to investment pathways.
What you need to do
The final rules and guidance will come into force on 6 April 2020. Firms and IGCs should adapt their practices accordingly. We have extended our implementation deadline for investment pathways to 1 February 2021. Firms that intend to offer pathway solutions should ensure that they have established an IGC or a GAA in good time before 1 February 2021. This means that the IGC or GAA must be able to raise any concerns, and the firm take account of those concerns, before the firm’s pathway solutions are offered to consumers.
What we will do next
In Q2 2020, we aim to publish the findings of our review of the effectiveness of IGCs, which is currently underway. We will review the impact of the rules we have already made for investment pathways 1 year after their implementation on 1 February 2021. Our review will also help us evaluate the success of IGCs in helping to make sure that pathway solutions deliver value for money.
15/05/2020: Information added Updated to reflect the extension of our implementation deadline for investment pathways