Placing too much legal liability on trustees risks "catastrophic" consequences for the financial system, according to a leading industry thinker.
Speaking at Pensions and Benefits UK on 30 June, London Business School executive fellow David Pitt-Watson raised concern that trustees could become "lemmings" by simply accepting advice to follow their peers.
But describing trustees as "unsung heroes", he said they had kept the pension system going for the past 70-80 years, particularly in the defined benefit (DB) space.
He also explained the quantity of pensions legislation had grown almost 30-fold over a 25-year period, placing a serious cost burden on the industry.
A former chair of Hermes Focus Funds, Pitt-Watson (pictured) warned against prescriptive legislation that prevented trustees from stepping into "the shoes of the person that they're trying to serve".
He said: "What we've done for trustees and fiduciaries is that we've over legalised their position such that, if you get advice as a trustee often you're told ‘well look, a couple of other people are doing this so you should do that as well because that would give you cover'.
"In terms of the risk that puts into the financial system, it's enormous because if one pension fund makes a mistake we can probably rescue that. But if every pension fund makes a mistake, that's absolutely catastrophic.
"The notion of the trustee's fiduciary duty is that you do have quite a lot of discretion as a reasonable group of people. You need to have expertise on that group, and you need to have independence and accountability in that group as well.
"It's the merger of those two that allows you to go forward and be successful. So I would entirely agree that putting too much legal liability on the trustee will mean that we all become lemmings."
Last year research from the Pensions Institute (PI) at Cass Business School warned the herd mentality of pension fund managers was threatening the stability of markets.
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