John Flynn: Our demands are not suggestions or preferences. They are not nice to haves. They are necessities.
The latest of the Association of Member-Nominated Trustees’ (AMNT’s) regular columns for PP calls for reforms on adequacy, de-risking and for member representation on trustee boards
The Association of Member Nominated Trustees (AMNT) has spent its whole existence supporting member-nominated trustees, member-nominated directors, and employee representatives across the UK's occupational pension schemes.
We are a support network and collective voice, acting as a counterbalance to sponsoring employers and professional advisers, with a focus solely in support of member outcomes.
We have watched the landscape shift dramatically and have serious concerns that the voice of members will be lost in the relentless push for consolidation and ‘efficiency'. To redress the balance, we now make urgent and uncompromising demands of government, regulators and scheme boards in the areas of adequacy, member representation and de-risking.
Adequacy is a moral imperative, not an optional agenda item
When we talk of pension adequacy, we are not discussing academic abstractions. We are talking about whether millions of British citizens can afford to eat, heat their homes and access the healthcare they need. We are talking about dignity not just survival.
The facts are stark. Right now, 1.2 million UK pensioners (12.5% of the entire pensioner population) rely wholly on the state pension and state entitlements. A further 21% survive on their state pension combined with Housing Benefit. These people are living on budgets that fall catastrophically short of minimum retirement standards. The state pension alone cannot protect against rising costs or enable pensioners to keep pace with technological change and modern life.
History teaches us a hard lesson that modern policymakers too often ignore. When governments allow welfare benefits to erode in value, social unrest follows. That unrest damages the very investment portfolios that are meant to provide future pensions. It destabilises markets. It undermines confidence. Ignoring adequacy is not just morally indefensible. It is economically reckless.
The migration from defined benefit (DB) to defined contribution (DC) schemes across the private and third sectors has made this crisis worse, not better.
A DC scheme returns roughly what has been paid in over 45 years. Contributions and investment returns, nothing more.
For millions of workers, the unfortunate reality is that little in produces little out. The working classes will suffer first, but middle-class families will follow. The consequences will be profound and lasting.
But this is not how it should be in a civilised developed society. AMNT welcomes the work currently happening in the Pensions Commission but will continue to demand loudly and without apology, that adequacy in all pension schemes be made a policy priority now.
Member representation on pension scheme boards must be mandatory
In the mid-1990s, landmark legislation created member-nominated trustees for occupational pension schemes. Most of those schemes were DB in nature and the system quickly proved that it worked. Trustees with genuine skin in the game protected member interests effectively.
Fast forward to today. The landscape has transformed beyond recognition. DC schemes now dominate. Yet the architectural vision for those modern schemes appears designed to erase member trustees from the governance process almost entirely. This is a catastrophic mistake and a betrayal of members interests.
This must change. Alongside the Trades Union Congress, the AMNT calls for a statutory requirement for member representatives to sit on every pension scheme board. Their participation should be mandatory.
AMNTs recently launched manifesto commits to principles that the association believes will protect the rights of members going forwards.
We believe that all trust-based pension scheme boards must include at least one-third member representation, regardless of scheme size or structure. These member trustees should be properly resourced with training, support and capacity to guarantee their representation is impactful and not merely symbolic.
In addition, we call for governance structures that mirror the workforce, incorporating industry-based and regional member panels to ensure sectoral and diverse representation;
Never forget, that in DC and collective DC (CDC) schemes, members will be the only real stakeholders, yet their voice remains almost silent within the largest arrangements.
That must end. As consolidation accelerates, we cannot squander the chance to embed the member voice firmly in these new structures. Trustees with genuine skin in the game have protected member interests since 1995. Never forget the crook Robert Maxwell and the suffering inflicted on his workers and pension scheme members. Protections that were introduced after his demise must never be abandoned for regulatory convenience or employer preference.
The de-risking straitjacket must be loosened
For over 15 years, professional firms have championed risk reduction programmes. We understand the logic and acknowledge its value. De-risking means reducing exposure to reward-seeking assets in investment portfolios.
The four pillars of DB risk reduction are sound in principle. Few could argue with the fact that integrated risk management, liability-driven investment, risk transfer endgame planning, and covenant monitoring protect member benefits while balancing employer affordability.
But something has gone seriously wrong in practice. These sophisticated principles have been reduced to simplistic phrases: gilts flat through to gilts plus 150 basis points. Over the last seven years, these phrases have hardened into an unquestioned mantra. Hardly anyone questions them. Virtually no one challenges them. Most investment committees repeat them like prayer. The result is an artificial straitjacket that constrains investment strategy without justification and without flexibility.
The AMNT says enough. It is time to loosen these chains and allow wider freedoms in setting investment strategies. We recommend that for most schemes extending the range to take higher risk levels allows the breathing room to pursue genuinely balanced investment strategies that serve member interests rather than regulatory convenience. Importantly, the introduction of CDC and the requirement for lifetime income products in guided retirement will significantly reduce the need to de-risk prematurely for the future.
Our demands are not suggestions or preferences. They are not nice to haves. They are necessities. They are moral imperatives. The AMNT will work to make them heard by Governments, regulators, professional advisers and scheme boards. The members we represent deserve nothing less than our complete commitment to their interests and their future.
To quote Andy Burnham as he entered Downing Street as our latest prime minister, "The care of people is at the heart of what we do". We welcome that sentiment and look forward to working with his government to ensure that care for members remains core to the governance of all pension schemes.
John Flynn is co-chair of the Association of Member-Nominated Trustees
