The Financial Conduct Authority (FCA) has published a review which has highlighted concerns the regulator has with the independence of some Independent Governance Committees (IGCs).

It also found a lack of consistency in the way IGCs and Governance Advisory Arrangements (GAAs) operate, which has resulted in members of some pension schemes not receiving value for money.

Alongside the publication of the review, the FCA has announced it is launching a consultation on driving value for money in pensions.

It has proposed rules on a clearer framework for value assessments and a requirement for IGCs to compare their company’s schemes against other options in the market.

The FCA hopes that these proposed changes would lead to “better and more consistent value for money assessments” across the market.

Its review found that some IGCs lacked the “necessary independence” and were ineffective at challenging firms to ensure value for money for scheme members, while those that maintained independence delivered better outcomes.

Furthermore, the regulator noted that GAAs operated by third-party firms on behalf of pension providers were less effective in delivering “meaningful improvements” in value for money.

The FCA has sent feedback letters to companies to ensure that they are making improvements on the way they work with IGCs and GAAs.

Its consultation, which has a deadline of 24 September 2020, seeks views on proposals to specify a “simple framework” for IGC and GAA value for money assessments, including a definition of value for money and “three key elements” of value for IGCs to use when conducting assessments.

It also noted that it will be working with The Pensions Regulator (TPR) to ensure a consistent approach across the regulators when assessing value for money.

“This consultation paper will help to ensure that pensions scheme members are getting value for money,” said FCA executive director of supervision (investment, wholesale and specialist), Megan Butler.

“Our separate review into IGCs and GAAs lays out the key lessons that need to be learned to ensure that workplace pension holders get a fair deal.

“The FCA has carefully considered these findings and is asking firms that do not meet our requirements to make improvements.”

Hymans Robertson head of DC governance consulting, Laura Andrikopoulos, said that although the firm welcomed the FCA's consultation launch, it was "vital" that focus on member outcomes is not lost amongst the changes.

"Value is not only about cost, but should be a holistic assessment taking into account the quality provided for that cost, levels of company contributions, and the ultimate outcome achieved through smart investment strategies and good retirement support, she stated.

"Concentration on governance regulation and cost through value for money should not come at the expense of these outcomes.”

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