The Top 5 issues in DC Governance

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  • 07 mins 11 secs
Laura Andrikopoulos, Head of Governance, Hymans Robertson joins us to talk the latest developments in DC pensions, whether having a professional trustee on the board should be mandatory & more.

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The Pensions Management Institute



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PRESENTER: Laura Andrikopoulos is Head of Governance at Hymans Robertson, and she joins us now on PMI TV to talk about some of the latest developments in DC pensions. Well, Laura, the regulator is very keen on small DC schemes consolidating, but is that always the right strategy for them to be following?

LAURA ANDRIKOPOULOS: I think for small DC schemes it probably is a good strategy. But in the wider market there is this great fervour and excitement about DC master trusts, in particular, and that’s great. I don’t want to dampen that down. They’re great vehicles offering really good pricing at the moment, and great options for members through retirement, flexibility and that sort of thing, but I think we should also just stop and think is this always the right solution for every DC scheme? Maybe not, because the single trust traditional DC scheme still has some life in it yet. And we are seeing corporates reaffirming that despite all this interest and excitement around that master trust market. So I would say that DC master trust market, very exciting, interesting times, but still early days for consolidation.

PRESENTER: And as DC schemes get bigger, do you think it’s sensible to have a professional trustee on the board, should it be mandatory?

LAURA ANDRIKOPOULOS: Well, this is the question that the regulator is proposing at the moment in their recent consultation, so should every board have that professional trustee there? Short answer, I’m going to say no. I think the reason for that is we do see lots of boards who function perfectly well without a professional. So it would be a bit onerous to say immediately you’ve got to have a professional. But I think we need to recognise that the direction of travel is towards greater professionalisation of governance within DC pensions, and we do see some great professional trustees out there adding lots of value. So what I say to my boards when they do their annual effectiveness review is you really need to look at your composition every year and check that you don’t need a professional. So do a little bit of a testing around that to make sure that you don’t yet need a professional.

PRESENTER: But pensions is complex, so if you don’t need a professional trustee, what should you do as trustees to make sure you’ve got the necessary level of professionalism and understanding?

LAURA ANDRIKOPOULOS: So trustee training, knowledge, skills, understanding, another really big topic for the regulator. I mean firstly I’d say that governance isn’t just about a professional trustee. Of course good trusteeship, they are the ultimate decision makers, is key. But you’ve also got, you could have a professional secretary for example, your advisers also have a big role to play in giving good quality advice, and I think trusteeship generally should be seen as a non-executive director role, and the profile of trusteeship needs to be raised generally so that it’s a really valued thing to do. Now the regulator is saying that, as regards to training, we should have minimum qualifications and sort of counting hours, CPD-type basis.

I think that’s not the way to go, because lots of professions are moving away from that sort of rigid counting hours basis to a more taking responsibility for one’s own learning: what does one need to know, what does one need to learn? So I think with trusteeship we shouldn’t jump into that counting hours basis right now, but what we need to do is change the culture around trusteeship to make it a really valued role for company and member nominated trustees, so that they want to do it, it’s great board experience, and then it will be a natural consequence that they’ll want loads of great quality training.

PRESENTER: Now, one of the things we’ve seen recently is chair statement requirements have been ramped up, fines have issued for non-compliance. What reaction are you seeing to this in the marketplace?

LAURA ANDRIKOPOULOS: A lot of weariness in the marketplace, I’m afraid. So the Chair’s statement when it came out was a great idea I think in terms of being this annual governance statement that every trust based scheme has to produce. And the idea was to demonstrate good governance, because the regulator is really concerned about governance. But unfortunately the way it’s been set up, the fact that the legislation says that it’s a mandatory fine for non-compliance, and the regulator is being quite tough on what constitutes compliance and to be fair they’re in a difficult position, that means that the whole exercise has become a really tortuous process of trying to comply with all the lots, increasing amount of rules, regulations.

Clients are racking up lots of legal fees, consultancy fees, and they’re really worried about the reputational risk of getting a fine, so they’re spending all this energy and time on a compliance document, and that time could be spent on real governance, real good governance. And I think there’s a bit of a disconnect now between necessarily having the perfect Chair’s statement and being a well governed scheme that is not quite doing its job.

PRESENTER: Final question around value for members. Sounds great in principle, but what constitutes good value for a member of a DC scheme, how do you work that out?

LAURA ANDRIKOPOULOS: So that the moment there is a legal definition that trustees of trust-based schemes have to consider every year and put in their Chair’s statement. And again there’s a bit of a problem there with the underlying legislation. So there’s a bit of a call for the DWP in this interview to have a look at some of this underlying legislation. Because the value for members that schemes are obliged to look at is just what do the members pay for, is it good value? Now that’s too simple because lots of members only pay for say investment charges, so it doesn’t take into account the administration quality they’re getting. It doesn’t take into account they might be getting brilliant governance.

It doesn’t take into account the employer’s contributions. So actually they could be getting fabulous, fantastic value, but none of that is in strictly speaking the equation that you need to look at. So there’s also what’s missing is member outcomes focus. So what really matters for a DC member is what they’re going to get in retirement and is it what they were expecting and is it good enough for them? And again there’s not enough focus on that in the underlying legislation and guidance.

PRESENTER: But whilst there are clearly some works in progress on this, if you’re a trustee of a scheme, what can you do in the meantime, or do you just have to suck it up and suffer in silence?

LAURA ANDRIKOPOULOS: Well, you have to do your value for members as defined by the legislation. But most of our clients, and this is what we recommend, is do that wider value for money piece as well. So there’s nothing to stop you doing more than the minimum legislation. So if you want best practice governance, you probably do need to do more than what the regulations require of you in that space.

PRESENTER: Laura Andrikopoulos, thank you very much.

LAURA ANDRIKOPOULOS: Thank you.

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