The FCA is looking to extend the remit of Independent Governance Committees that oversee workplace pensions.
In a consultation paper – published today – it sets out two key new roles for these committees. This will include an obligation to report on the firm’s policies on environmental, social and governance (ESG) issues, consumer concerns and stewardship for the products IGCs oversee.
IGCs will also be required to ensure that these ESG guidelines are properly adhered to. This will bring the remit of IGCs in line with trustee-based workplace pensions, who are required to consider ESG issues as part of their wider investment policy from this Autumn.
The FCA also wants IGCs to oversee the value for money of the FCAs new investment pathways. This will include the new drawdown pathways designed to help people make the most of the new pension freedom rules.
The consultation paper also makes it clear that the FCA wants IGCs to take a more active role overseeing communications and engagement programmes.
It wants IGCs to consider whether communications to members are fit for purpose and properly take into account members’ characteristics, needs and objectives.
The FCA is inviting comments on these recommendations by mid July.
The FCA says: “In the first area, our proposals are to help protect consumers from investments that may be unsuitable because of ESG risks including climate change, to help make sure that consumer concerns are taken into account, and to help encourage good stewardship of investments.”
The FCA says these proposals reflect recommendations made by the Law Commission in its report on Pension Funds and Social Investment, published in June 2017.
The FCA adds that its second main change follows its Retirement Outcomes Review consultation paper, published earlier this year. Here the FCA proposed changes to its rules and guidance, to require drawdown providers to offer investment pathways to non-advised consumers entering drawdown.
It says: “We proposed that providers must offer non-advised consumers entering drawdown a choice between four clear and prescribed objectives for what they want to do with their drawdown savings. For each of these objectives, larger drawdown providers must offer a single investment solution (a ‘pathway solution’).
The FCA says it will consider feedback it receives to this consultation with the view to amending rules and making a policy statement by the end of 2019.
Hargreaves Lansdown senior analyst Nathan Long described this as a potentially “significant shift” in the balance of regulatory responsibility.
He says: “The success of IGCs in workplace pensions has convinced the FCA to look at going all in, and to extend their reach to include retirement, ESG policies and elements of non-workplace pensions.
“This potentially represents a very significant shift in how pensions and personal finances more widely are policed and it’s important the FCA doesn’t give up on trying to encourage people to save and invest for themselves.
“Building up the pension pots of workers who’ve made no active decisions is a world away from the myriad of personal decisions made by people at the point of retirement. Currently, a narrow remit allows IGCs to be effective tyre kickers, it’s not certain the same will be true with more on their plate.”