The Pensions and Lifetime Savings Association (PLSA) has today published Good Governance – how to get there: A PLSA discussion paper setting out the PLSA’s definition of good pension fund governance.
The paper argues that it is the ‘inputs’ that determine the quality of scheme governance. These inputs are chiefly concerned with the qualities of scheme governance bodies and the support they are able to draw upon. Key characteristics of effective boards or committees include:
- collective knowledge of the technical areas relevant to pension fund administration, on issues including investment, legal and actuarial matters;
- more general skills, such as an ability to communicate effectively and commercial acumen when dealing with external advisers;
- cognitive diversity, through board or committee members with a range of different backgrounds and perspectives;
- access to executive support for the day-today running of the scheme, enabling the governance body to concentrate on key strategic decisions.
The PLSA say governance bodies with these characteristics will take good decisions, increasing the likelihood of good outcomes for scheme members. Therefore, The Pensions Regulator (TPR) should concentrate on ensuring that individuals who are appointed to boards and committees have the appropriate knowledge and experience. This contrasts with the current approach, which the paper suggests is focused on process rather than people. Regulation attempts to manage schemes from the centre by mandating the individual processes that schemes undertake, but has not delivered the necessary improvements.
TPR research has shown highly varied standards of governance, with only half of surveyed schemes saying all their trustees meet standards set out in the Trustee Knowledge and Understanding (TKU) Code of Practice, while 24 per cent say they never disagree with external advisors and 58 per cent say they ‘rarely’ do so, hinting at a lack of capacity to challenge expensive advice.
The paper contrasts the prominence of pension fund governance with the UK’s corporate governance regime, which is based on a high profile Corporate Governance Code, and subject to intense media and political interest, as demonstrated by the Prime Minister’s recent proposals for reforms to board structures and executive pay practices. Even though pension funds are often responsible for assets under management of the equivalent value to a major company, their governance is subject to comparatively little scrutiny.
Joe Dabrowski, Head of Governance & Investment, Pensions and Lifetime Savings Association, commented:
“The most important ingredient of good governance is the people who provide it. Pension schemes are affected by the fortunes of their sponsors and the wider economy so cannot guarantee success, but governance bodies that are expert, effective and diverse give them the best possible chance of success.
“Currently the regulation of the pensions industry is characterised by a strong focus on outputs. There are a wide range of different regulations setting out expectations of boards and committees, largely concerned with process rather than with ensuring that governance bodies are appropriately skilled. These regulations set out a confusing array of rules for pension scheme governance bodies to get to grips with.
“Regulatory oversight should instead focus on ensuring the right people are appointed to governance positions and let them take decisions in the best interests of their scheme. We believe this would deliver the high standards of governance necessary to give pension scheme members security and confidence in their pension fund.”
A full copy of the report can be found here.
NOTES TO EDITORS:
For an embargoed copy of the report, a photo or additional comment, please contact:
Lee Blackwell, Head of Media & PR, Pensions and Lifetime Savings Association
T: 020 7601 1726, M: 07713 073 023, E: [email protected]
Kathryn Mortimer, Press Officer, Pensions and Lifetime Savings Association
T: 020 7601 1748, M: 07901 007713, E: [email protected]
ABOUT THE PENSIONS AND LIFETIME SAVINGS ASSOCIATION
We’re the Pensions and Lifetime Savings Association; the national association with a ninety year history of helping pension professionals run better pension schemes. Our members include over 1,300 pension schemes with 20 million members and £1 trillion in assets, and over 400 businesses. They make us the voice for pensions and lifetime savings in Westminster, Whitehall and Brussels.
Our purpose is simple: to help everyone to achieve a better income in retirement. We work to get more money into retirement savings, to get more value out of those savings and to build the confidence and understanding of savers.