Maggie Rodger is co-chair of the Association of Member-Nominated Trustees
The latest of the Association of Member-Nominated Trustees’ (AMNT’s) regular columns says that, 35 years on from Maxwell, the need for ‘involved stakeholders’ is greater than ever.
The history of trusteeship in general can be traced back to the medieval crusaders, who left behind their wives and their other property to be looked after by a nominated steward.
On their return some crusaders found their untrustworthy steward failed to return the assets. From this was born the legal concept of trusteeship, with the trustee owning and managing assets for the benefit of another.
However, this form of governance was severely tested in the 1990s following the disappearance of Robert Maxwell from his yacht on 5 November 1991. It was quickly uncovered that the pension funds of many of the Mirror Group pensioners had also disappeared, having been used by Maxwell to prop up his failing publishing empire.
Many of those overseeing the various Mirror group pensions had failed to challenge the actions of Maxwell, a bullying, dominant character. Fortunately, after years of hard work, the funds were recovered for pensioners.
One outcome of this criminal activity and glaring lack of oversight was the Pensions Act of 1995. This created the requirement for pension trustees boards to include equal numbers of member and employer trustees. The board could be supplemented by independents, but it was designed to give equal voices to the pension stakeholders and prevent similar situations occurring.
Fast forwarding to today we have a complicated and continually changing regulatory structure and multiple models of pensions' governance, from the traditional 1995 model, through multi-employer schemes, master trusts, and the growth of sole trusteeship.
And we find that the future of trusteeship is under discussion again. While we now have the Pension Protection Fund (PPF) to protect the members of failing schemes, and The Pensions Regulator (TPR) to be a robust system of oversight, we still face the questions of how to protect those to whom the pension assets belong and to generate the returns they require to provide a decent pension.
The Department for Work and Pensions' consultation document references an OECD study which found governance improvements could be made through higher levels of training for trustees, codes of conduct addressing conflicts of interest, and more balanced representation of stakeholders in the governing body. So, over 30 years later, we are back to the 1995 Act!
The introduction of member trustees brought an insight into wider member views as well as governance balance. Member-nominated trustees (MNTs) have given confidence to members that their scheme is being run in their interests.
This was demonstrated recently when the Royal Mail member trustees were instrumental in helping their members understand and accept collective defined contribution (CDC).
However, the closure of traditional defined benefit (DB) schemes, the move to professional corporate sole trustee (PCST) governance and the rise of large schemes run without a member voice means that this governance balance is decreasing. The AMNT believes that this is a retrograde step.
As we look forward, we see increasing conflicts; between the desire of some employers to be rid of the burden of their schemes; increasing commercial conflicts as we move towards larger schemes; the difficulty of managing inherent conflicts of PCST; discussions about the right ownership of surplus; and even a government that is considering mandating some scheme investments.
Alongside this is concern that scheme members are not receiving fair value from their funds or having their voices and varying needs heard in governance.
New pension models, such as CDC, will rely for their success on good governance to ensure generational fairness in the design, annual valuation and balancing decisions. Value for money proposals in defined contribution (DC) stop short at the non- numerical concepts of stewardship and service quality. Since these DC models place all the risk on members, either individually, or shared, surely they should be involved in governance of these issues?
There are some who have seen MNTs as equivalent to amateur (compared to professional) trustees. That is faulty thinking. Member trustees bring one thing that cannot be acquired either by learning, or by experience. They are involved stakeholders. They have skin in the game.
The role of trustee is demanding but there are ways to enhance learning. Within increasingly large schemes, there will already be members with significant transferable skills who should be encouraged to take up such a role. There are plenty of member trustees who have completed the accreditation qualification, (the same qualification under discussion as to whether it should be mandatory for professional trustees). There are even more member trustees who have enquired about becoming accredited but have been refused time or funding by their employer. That is an area that should be addressed.
As the pensions world becomes more complicated all pension trustees, including MNTs, will need to be better trained. But the function of MNTs, acting as stakeholders on behalf of all members is crucial to ensuring a balance of governance and is needed now as much as ever.
Maggie Rodger is co-chair of the Association of Member-Nominated Trustees
