Aegon UK Independent Goverance Committee - Terms of Reference

1. Purpose of the Independent Governance Committee (the “IGC”)

The IGC has been established by the AICB with the purpose, in summary, of representing the interests of relevant policyholders in the Company’s relevant schemes.

In these terms of reference the following terms shall have the following meanings:

AICB” means the Aegon Insurance Company Board (being the Board of Directors of SE).

“COBS” means the Conduct of Business Sourcebook of the Financial Conduct Authority (as amended).

Company” means Scottish Equitable plc.

“CRO” means Chief Risk Officer.

IEC” means the Insurance Executive Committee established by the AICB.

Relevant policyholders” means a member of a relevant scheme who is or has been a worker entitled to have contributions paid by or on behalf of his employer in respect of that relevant scheme.

Relevant scheme” means a personal pension scheme (as defined in COBS) or stakeholder pension scheme (as defined in COBS) for which direct payment arrangements are, or have been, in place, and under which contributions have been paid for two or more employees (as defined in COBS) of the same employer. (“Direct payment arrangements” has the same meaning as in section 111A of the Pension Schemes Act 1993, that is, arrangements under which contributions fall to be paid by or on behalf of the employer towards the scheme (a) on the employer’s own account (but in respect of the employee); or (b) on behalf of the employee out of deductions from the employee’s earnings).

SE” means Scottish Equitable plc.

2. Authority

2.1 The IGC has been established by the AICB.

3. Matters for which the IGC is responsible

3.1 The IGC must comply with the following requirements as set out in COBS 19.5.5R:

3.1.1 the IGC will act solely in the interests of relevant policyholders;

3.1.2 the IGC will assess the ongoing value for money for relevant policyholders delivered by relevant schemes particularly, though not exclusively, through assessing:

a. whether default investment strategies within those schemes:

          i. are designed and executed in the interests of relevant policyholders;

          ii. have clear statements of aims and objectives;

b. whether the characteristics and net performance of investment strategies are regularly reviewed by the Company to ensure alignment with the interests of relevant policyholders and that the Company takes action to make any necessary changes;

c. whether core scheme financial transactions are processed promptly and accurately;

d. the levels of charges borne by relevant policyholders; and

e. the direct and indirect costs incurred as a result of managing and investing, and activities in connection with the managing and investing of, the pension savings of relevant policyholders, including transaction costs;

3.1.3 The IGC will raise with the AICB any concerns it may have in relation to the value for money for relevant policyholders delivered by a relevant scheme; and

3.1.4 The IGC will escalate concerns as appropriate where the Company has not, in the IGC’s opinion, addressed those concerns satisfactorily or at all (see section 8 (Escalation) below).

3.2 The IGC is expected to act in the interests of relevant policyholders both individually and collectively. Where there is the potential for conflict between individual and collective interests, the IGC should manage this conflict effectively. The IGC is not expected to deal directly with complaints from individual policyholders. (COBS 19.5.6G(1))

3.3 The primary focus of the IGC should be the interests of relevant policyholders. Should the Company ask the IGC to consider the interests of other members, the Company should provide additional resources and support to the IGC such that the IGC’s ability to act in the interests of relevant policyholders is not compromised. (COBS 19.5.6G(2))

3.4 The IGC should assess whether all the investment choices available to relevant policyholders, including default options, are regularly reviewed to ensure alignment with the interests of relevant policyholders. (COBS 19.5.6G(3))

3.5 The IGC should make public the names of those members who are employees of the Company, unless there are compelling reasons not to do so. The IGC should consult employee members as to whether there are such reasons. (COBS 19.5.6G(7))

4. Matters for which the IGC Chair is responsible

The IGC Chair is responsible for the production of an annual report setting out:

a) the IGC’s opinion on the value for money delivered by relevant schemes, particularly against the matters listed under 3.1.2 above;

b) how the IGC has considered relevant policyholders’ interests;

c) any concerns raised by the IGC with the AICB and the response received to those concerns (see section 8 (Escalation) below);

d) how the IGC has sufficient expertise, experience and independence to act in relevant policyholders’ interests;

e) how each independent member of the IGC, together with confirmation that the IGC considers these members to be independent, has taken into account COBS 19.5.12G (which sets out circumstances in which an individual is unlikely to be considered independent);

f) the arrangements put in place by the Company to ensure that the views of relevant policyholders are directly represented to the IGC;

g) the names of the Aegon representatives unless there are compelling reasons not to make public their names (see 3.5 above).

Where the IGC is unable to obtain from the Company, and ultimately from any person providing relevant services, the information it requires to assess the matters in 3.1.2 above, the IGC should explain in the annual report why it has been unable to obtain the information and how it will take steps to be granted access to that information in the future. (COBS 19.5.6G(4))

5. The Company’s duties and responsibilities in respect of the IGC

Appointments to the IGC

5.1 In relation to appointments to the IGC the Company must comply with the following requirements as set out in COBS 19.5.9R:

5.1.1 The Company must take reasonable steps to ensure that the IGC has sufficient collective expertise and experience to be able to make judgements on the value for money of relevant schemes.

5.1.2 The Company must recruit independent IGC members through an open and transparent recruitment process.

5.1.3 The Company must appoint members to the IGC so that:

(a) the IGC consists of at least five members, including an independent Chair and a majority of independent members;

(b) IGC members are bound by appropriate contracts which reflect 3.1 of these terms of reference, and on such terms as to secure the independence of independent members;

(c) independent IGC members who are individuals are appointed for fixed terms of no longer than five years, with a cumulative maximum duration of ten years;

(d) individuals acting as the representative of an independent corporate member are appointed to the IGC for a maximum duration of ten years;

(e) independent IGC members who are individuals, including those representing independent corporate members, are not eligible for reappointment to the IGC until five years have elapsed, after having served on the firm’s IGC for the maximum duration of ten years;

(f) appointments to the IGC are managed to maintain continuity in terms of expertise and experience of the IGC.

5.2 The Company, in appointing independent IGC members, must determine whether such a member is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, that member’s judgement. (COBS 19.5.11R). The Company will continue to monitor the independence of independent IGC members.

5.3 The Company should replace any vacancies that arise within IGCs as soon as possible and, in any event, within six months. (COBS 19.5.10G (3))

5.4 The Company should involve the IGC Chair in the appointment and removal of other members, both independent members and employees of the firm. (COBS 19.5.10G (4))

Operation of the IGC

5.5 The Company must comply with the following requirements in relation to the operation of the IGC as set out in COBS 19.5.7R:

a) take reasonable steps to ensure that the IGC acts and continues to act in accordance with its terms of reference;

b) take reasonable steps to provide the IGC with all information reasonably requested by the IGC for the purposes of carrying out its role;

c) provide the IGC with sufficient resources as are reasonably necessary to allow it to carry out its role independently;

d) have arrangements to ensure that the views of relevant policyholders can be directly represented to the IGC;

e) take reasonable steps to address any concerns raised by the IGC under its terms of reference;

f) provide written reasons to the IGC as to why it has decided to depart in any material way from any advice or recommendations made by the IGC to address any concerns it has raised;

g) take all necessary steps to facilitate the escalation of concerns by the IGC under 3.4 above and COBS 19.5.6G(5); and

h) make the terms of reference and the annual report of the IGC publicly available. Note this can be done by placing them on the Company’s website and by providing them on request to relevant policyholders and their employers (COBS 19.5.8G(8)).

5.6 The Company has appointed the CRO as the person holding an FCA Significant Influence Function with responsibility for the management of the relationship between the Company and the IGC. (COBS 19.5.8G(1))

5.7 The Company should fund reasonable independent advice for the IGC if this is necessary and proportionate. (COBS 19.5.8G(2))

5.8 The Company should have arrangements for sharing confidential and commercially sensitive information with the IGC. (COBS 19.5.8G(4)). (Note: The Company should not unreasonably withhold from the IGC information that would enable the IGC to carry out a comprehensive assessment of value for money. (COBS 19.5.8G(3)))

5.9 The Company should use best endeavours to obtain, and should provide the IGC with, information on the costs incurred as a result of managing and investing, and activities in connection with the managing and investing of, the assets of relevant schemes, including transaction costs. Information about costs and charges more broadly should also be provided, so that the IGC can properly assess the value for money of relevant schemes and the funds held within these. (COBS 19.5.8G(5))

5.10 If the Company asks the IGC to take on responsibilities in addition to those in 3.1 above, the Company should provide additional resources and support to the IGC such that its ability to act within its terms of reference in 3.1 above is not compromised. (COBS 19.5.8G(6))

5.11 The Company should provide secretarial and other administrative support to the IGC. The nature of the support, including how it is provided and by whom, should not conflict with the IGC’s ability to act independently of the Company. (COBS 19.5.8G(7))

6. Interaction with Aegon UK Governance Framework

The Insurance Executive Committee is a committee of the AICB with responsibility for the management of the business of the Company on a day to day basis. The IEC controls the resources of the Company under the oversight of the AICB and will be involved in reviewing the inputs to the IGC.

The IGC will work closely with the IEC and its sub-committees, in particular the Customer Committee, in discharging its responsibilities.

This close collaboration with the IEC is without prejudice to the right of the IGC to escalate matters to the AICB as set out in section 8 (Escalation) below.

7. Membership and Voting

7.1 Members shall include the following:

7.1.1 Independent Chair;

7.1.2 Independent Member;

7.1.3 Independent Member;

7.1.4 Aegon representative; and

7.1.5 Aegon representative.

Additional members may be proposed by the Chair or the IGC to the AICB NOMCO for approval by the AICB, or may otherwise be appointed by the AICB, provided that the majority of the members of the IGC are independent.

Subject to the necessary approvals, appointments to the IGC shall be for a period of up to three years. This may be extended by no more than two additional periods of up to three years, provided an individual still meets the criteria for membership of the IGC. (It is noted that COBS 19.5.9R(3)(c) and (d) provide: (c) independent IGC members who are individuals must be appointed for fixed terms of no longer than five years, with a cumulative maximum duration of ten years; (d) individuals acting as the representative of an independent corporate member have a maximum duration of ten years).

The FCA rules and guidance regarding the appointment of IGC members are set out in Appendix 1 including the guidance regarding when an IGC member is unlikely to be considered independent.

7.2 Chair: The Chair of the IGC as appointed by the AICB from time to time or, in his/her absence, the Chair will be as appointed by the meeting. 

7.3 Secretary: The Secretary of the IGC will be as appointed by the AICB (and an Aegon employee).

7.4 Attendees: The following shall be standing attendees:

7.4.1 Chief Risk Officer.

Additional attendees may be invited by the Chair or the IGC to attend meetings of the IGC from time to time.

7.5 Quorum: Three members or such other number as proposed by the Chair and approved by the IGC at a quorate meeting provided that the quorum must at all times include two independent members and one Aegon representative.

7.6 Voting rights: All members have the right to vote on any matter raised at a meeting of the IGC.  Although normally decisions are reached on a consensus, in the event of a disagreement, decisions on any matter are made by the majority.  The Chair does not have a casting vote.

7.7 Conflicts: Members of the IGC are required to declare actual or potential conflicts of interests as soon as they are identified in accordance with Aegon’s Conflicts of Interests Policy and Guidance and Minimum Standards as if they were directors of the Company.

8. Escalation

Where any matter arises at a meeting of the IGC which the IGC decides should be escalated to the AICB, the Chair of the IGC shall discuss the matter with the CRO (as the person holding an FCA Significant Influence Function with responsibility for the management of the relationship between the Company and the IGC).

The CRO will discuss the matter with the Chair of the AICB and arrange for the matter to be considered by the AICB either:

8.1 prior to the next scheduled meeting of the AICB in which case the Chair of the AICB will call an ad hoc meeting; or

8.2 at the next scheduled meeting of the AICB in which case the IGC shall include the matter in a report on matters which require escalation and the CRO will submit it to the secretary of the AICB.

If, having raised concerns with the AICB (liaising with the CRO as appropriate)  about the value for money offered to relevant policyholders by a relevant scheme, the IGC is not satisfied with the response of the AICB, the IGC Chair may escalate concerns to the FCA if the IGC thinks that would be appropriate. The IGC may also alert relevant policyholders and employers and make its concerns public. (COBS 19.5.6G(5))

The IGC Chair should raise with the AICB (liaising with the CRO as appropriate) any concerns that the IGC has about the information or resources that the Company provides, or arrangements that the Company puts in place to ensure that the views of relevant policyholders are directly represented to the IGC. If the IGC is not satisfied with the response of the AICB, the IGC Chair may escalate its concerns to the FCA, if appropriate. The IGC may also make its concerns public. (COBS 19.5.6G(6))

Before escalating such concerns to the FCA or alerting policyholders and employers and making such concerns public, the IGC Chair shall notify the AICB (liaising with the CRO as appropriate) of its intention to do so and give the AICB 20 Business Days to respond. If no response is received the IGC Chair may so escalate such concerns allowing the AICB the opportunity to comment on the content of such concerns. If the AICB responds, the IGC shall consider the AICB’s response and confirm to the AICB whether it satisfies its concerns or not before so escalating such concerns. The IGC is required to notify the FCA before it alerts policyholders or employers or otherwise makes its concerns public. 

9. Frequency

The IGC shall meet at least quarterly, or more frequently as the Chair may specify.

Meetings of the IGC shall be called by the Secretary at the request of the Chair.

Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the IGC and any other person required to attend, no later than three working days before the meeting - supporting papers shall be sent to IGC members and to other attendees (as appropriate) at the same time or as soon as practicable thereafter.

Following a meeting of the IGC, one of the Aegon representatives shall update the AICB (at the next scheduled AICB meeting) on the matters that were considered. This update may be verbal or in writing.

10. Standing Agenda Items

10.1 The Chair will liaise with the Members and the Secretary when drafting the agenda.

10.2 Standing agenda items/inputs to be considered by the IGC shall normally include, but shall not be limited to, the following:

a) Minutes of previous meetings and actions list;

b) Specific issues referred to the IGC;

c) Any other business.

11. Outputs

a) Minutes and actions list;

b) Escalation of issues to the AICB;

c) IGC Chairman’s annual report; and

d) Summary of papers and recommendations to the AICB.

12. Amendments to Terms of Reference 

The IGC will review these Terms of Reference at least annually to ensure they remain up to date and consistent with best practice.  Any amendments to these Term of Reference must be agreed by the AICB.