Written by - Juluan Mund, Client Relations PLSA
Published on14 January 2020 at 12:14. Reading time 5 min
Pension schemes are currently dealing with a significant amount of regulatory and industry change, from the impact of the pension freedoms, DB and DC consolidation and new disclosure requirements, to greater regulatory focus on value for money.
On top of managing all this change, the Pensions Regulator has sent schemes a very clear message, through its 21st Century Trusteeship campaign, that proper governance must not to be allowed to fall down the list of priorities.
Good governance is vital to ensuring well-run schemes and good member outcomes. Having the right people in place who have the right mixture of experience, skills and understanding is a key part of effective governance.
That is why mallowstreet’s recently published inaugural Trustee Report is so timely.
mallowstreet – in partnership with the PLSA, the Association of Member Nominated Trustees and the Pensions Management Institute – surveyed 200 members of the UK pensions community in August and September 2019. Participants answered 32 questions, which highlighted the biggest challenges the sector faces.
The survey found that only 18% of pension schemes consider governance a top three priority for the next 1-2 years.
At the PLSA we believe governance is a key part of well-run schemes – it is one of our four priority themes for the next three years. Research estimates that the impact of good governance can be up to 1% of a fund’s value a year, yet TPR research found that only 49% of schemes with non-professional trustees believe all of their trustees had the requisite level of trustee knowledge and understanding, while 10% had not heard of TKU or TPR’s Code.
It is disappointing that schemes are not yet giving good governance the priority it deserves. The PLSA will continue to feed into policy and regulatory developments, as well as providing practical support in 2020. This includes resources like Good Governance: How to Get There,Hitting the Target, the PLSA Effective Governance Service (developed in collaboration with KPMG) and the forthcoming practical guidance on trustee diversity (to be published in the first quarter of 2020).
The mallowstreet Trustee Report also identified that 48% of pension professionals have obtained only one certificate – for most it is the TPR Toolkit – and only 10% of UK pension funds consider trustee training one of their three top priorities for the next 1-2 years.
Trustee training should not be considered a ‘once and done’ deal, particularly given the rapidly changing legislative, industry and financial markets landscape. It should also be noted that committed, enthusiastic trustees will be sufficiently motivated anyway to ensure they continue to have the skills, knowledge and understanding necessary to make the best possible decisions in the best interests of members.
The PLSA is cognisant of the demands on pension schemes, and some schemes are prioritising existential funding issues, investment strategy, integration of ESG and cost transparency.
However, the mallowstreet survey found UK pensions professionals are up to 2.8 times as satisfied with workload if they are happy with their resources and support. Types of resource used vary by scheme, including consultants, asset managers, peers, scheme secretary, pensions manager and independent trustee but it is clear that a focus on resourcing makes everything easier.
A key part of our trusteeship and governance response was the vital role of “strong executive support”. This built on our work in Hitting the Target and Good Governance: How to Get There, which recommended that schemes implement a governance structure involving a board or committee carrying out strategic oversight, and an executive body responsible for day-to-day running of the scheme (closely resembling the corporate governance model of a board and an executive committee).
We argue that TPR has not sufficiently explored how scheme trustees and decision-makers can ensure a well-resourced and efficient executive and does not seem to have a clear idea of what the executive support landscape looks like.
Despite the challenges, there are substantial parts of the market which are already delivering very high-quality provision.
The PLSA welcomes additional TPR scrutiny on scheme governance and administration over the next 12–18 months. However, any assessment must avoid piecemeal targeting of specific issues in a way that has unintended consequences or duplicates existing demands on trustees.
Our response to TPR’s Future of Trustee and Governance Paper was forthright that the regulator needs to be clear about what problems it is trying to solve and to ensure that interventions must not disproportionately burden funds that are engaging with the regulator and achieving good governance standards.
Any new regulatory requirements must be purposeful, proportionate and pragmatic. In particular, they must allow good schemes of all shapes and sizes the space to continue to thrive. They must also be undertaken as part of a clear-sighted and coherent assessment of the bigger issues around scheme governance, which we hope will form an explicit part of TPR’s thinking on this area over the coming months.