The TUC says the government should establish minimum requirements for member representation at scale
It is of “vital” importance for pension scheme boards to ensure workers are well-represented and have a voice on how their pensions are managed, a report by the Trades Union Congress (TUC) says.
The TUC's report – Member voice in pension scheme governance – published today (5 March), analysed the role of member-nominated trustees (MNTs) have in the governance of pension schemes in the UK and abroad. It also researched how this impacts members' pension outcomes and the workers' voices are changing as the industry moves towards consolidation in both the defined benefit and defined contribution (DC) sectors.
The union's report comes as the government's consultation on improving trustee and governance closes for comments tomorrow (6 March).
The report found member representation requirements were previously regarded as a key protection and mandatory MNTs were introduced, particularly following the Robert Maxwell scandal in 1991.
However, in the years since, it said the role of member representation is "declining" due to the push for consolidation and the shifts in governance towards larger multi-employer schemes, where such requirements no longer apply.
The TUC stated this decline was "structural", not "incidental" and reflected the shift away from employer-based schemes where the scheme governance was closer to workplaces and workforce institutions. It said that pensions are now increasingly provided through standalone financial institutions, which leads to governance decisions being conducted in a more "centralised" manner and member contact is mediated through communications, administration, and regulatory oversight rather than direct member representation.
The report also noted while current substitutes for representation are present in some master trusts through member panels and other member voice channels, through communication and feedback duties in collective DC schemes and through consultation requirements and local pension board structures in the Local Government Pension Scheme.
The TUC said with the government consulting on improving pension scheme governance, it should look to use this opportunity to ensure that members' voices continue to be present on trustee boards, no matter the type of pension scheme their employer chooses for them. It said although making member representation work for the biggest schemes will bring challenges, there are solutions and added the UK could look to international examples in how to improve member representation on scheme trustee boards.
‘Core' governance safeguard
In its recommendations to the government ahead of the closing of its consultation, the TUC said to improve the member representation on pension scheme boards, the TUC said the government should establish minimum requirements for member representation at scale and to ensure member representation remains a "core" governance safeguard, all trustee boards should be required to include at least one-third member representation, regardless of scheme size or structure.
The report also advocated for the creation of a working group to assess the challenges of embedding member representation in large multi-employer schemes and develop best practices for representing diverse membership groups.
The TUC also advised the government to enable structured member representation in these multi-employer schemes and said representation in these schemes should be "anchored in defined member groups" rather than individual employers. To do this, the report stated regulators should encourage governance structures which permit sectoral, occupational or regional representation within multi-employer schemes.
Lastly, the report recommended the government should set minimum standards for support, training and resourcing to ensure member representation is effective rather than "symbolic".
TUC general secretary Paul Nowak said: "Pension schemes deliver better outcomes for members - and ultimately a better quality of life in retirement - when those members have a say in how they are run.
"As the government looks to move to a system of fewer, bigger pension schemes, ministers should look to Australia and Canada to see how member representation can help to ensure those bigger schemes deliver better results. All workers deserve to retire in dignity. It is vital that pensions are governed fairly."
