Pulling in the same direction
5th December, 2019
We are exposed daily to an abundance of rhetoric – particularly during this season of election fever, with little evidence of goodwill to all men (and women). We hear a lot said about divisions in society and about creating a fair playing field for everyone. It seems to me that there is clear metaphor here for the very obvious divide among the UK’s defined benefit (DB) pension schemes.
On one side are the largest DB schemes with the biggest budgets, there are maybe up to around 1,000 of these, which are well run with high standards of governance. They have the financial resources available to recruit the best external advisers, a committed sponsor, dedicated employer nominated trustees (ENTs) and experienced, knowledgeable member-nominated trustees (MNTs).
On the other side, 4,000 or more smaller DB schemes are struggling to meet the standards of good governance required by The Pensions Regulator (notwithstanding that a small proportion of smaller schemes are well-run too). These schemes are duty bound to provide the same value for members as larger schemes. However, they do not have access to the same large budgets to hire the top consultants and investment advisers, nor do they have the experience and knowledge of well-informed and highly motivated MNTs. And often, the sponsor’s focus is solely on the business, and not on the pension scheme.
The Regulator’s consultation paper, ‘Future of Trusteeship and governance’ has created much debate in the pensions industry by suggesting a solution to this issue could be a requirement for mandatory professional trustee appointments on every board.
Safeguarding members’ interests
The Association of Member Nominated Trustees (AMNT) has, not surprisingly, leapt to the defence of its members and makes a passionate case for the democracy that MNTs bring. It describes the DB scheme ‘triangle’ where each side is kept in balance – sponsoring employers, consultants and fund managers, and individual scheme members. It believes that MNTs are vital in ensuring members’ interests are safeguarded.
Whilst I do not fully understand the AMNT’s triangle (surely trustees should form one side of the triangle not third-party advisors who have no formal responsibility to the members?), no-one in the pensions industry would argue with that moral principle. We all want positive member outcomes and have the best interests of scheme members at the forefront of our decision making.
The current debate does not call into question the valuable contributions made by both ENTs and MNTs, who often have long-term knowledge of the sponsoring employer and the scheme, and act with honesty and integrity. The problem is that this situation exists in only a minority of DB schemes.
The real issue, and the obvious truth, is that many DB schemes have in place trustees who, through no fault of their own, do not have sufficient time, knowledge or experience to properly manage their pension scheme. All members deserve high standards of governance, security and value for money – why should members suffer just because they are not in one of the large well-governed schemes or in one of the few small schemes being run well by their trustees. It is apparent that in the current environment, the playing field is not level for all scheme members and outcomes for many members suffer because of this.
Professional trusteeship is my career. It demands a high degree of commitment, expertise and high standards that would be difficult to meet if I were to have a day job as well as being a trustee. The professional trustee community is:
- vibrant, proactive and developing fast,
- adding value through better governance and better management of advisers,
- enabling quicker and more efficient decision-making,
- working for schemes across the spectrum from large to small, from simple to complex
- passing on knowledge and experience to other trustees, and
- supporting the Regulator in its wider governance goals.
MNTs and ENTs need time, knowledge and experience. There is no value to members having MNTs (or ENTs) representing them if they are not fully committed. If any lack of commitment exists, then the task of running the pension scheme gets left to the advisers and other third parties. Fortunately, most advisers act in members’ interests too, but ultimately their responsibility is to their own firms and not to our members. This all contrasts with the position for professional trustees who do have the time and expertise to run pension schemes and so deliver on their fiduciary duty to members.
Professional trustees are part of the overall solution to address the badly run DB schemes, which is the point being made by the Regulator. Further, professional trustees are just as passionate about looking after members as MNTs are. And in many cases, more so.
Ultimately, and the point I wish to reiterate with this blog, is that we should all be working together to look after pension scheme members. That includes the AMNT, any equivalent ENT groups, professional trustees and the Regulator. We must all pull in the same direction.