Friday, 24 November 2017

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    Raising governance standards in small schemes is not mission impossible

    The glass is not necessarily half-empty when it comes to standards of trusteeship in, says ex-TPR boss Tony Hobman

    My mobile phone is older than it ought to be (the kids keep taking my upgrades) but it didn’t stop the Pensions Regulator (TPR)’s latest DC Spotlight pinging into its inbox last week. The fourth in a series of six summary guides, this one highlighted the key factors to take into account in ensuring good investment governance.

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    It’s a brief but user-friendly check-list in its own right and acts as a signpost to the more detailed and complex issues that lie beneath. As such, it sits well with the regulator’s commitment to provide practical responses to last year’s consultation on 21st Century Trusteeship. Unsurprisingly, a good chunk of the Spotlight’s introductory section is taken up acknowledging that many trustees have only limited time to devote to the role and to the stark, if generally accepted, wisdom that “running a pension scheme is a challenge”.

    We’ve already seen the spectacular effects of increased volatility in the system

    Of course, much of the crystal ball gazing for this year has already been done and it’s difficult to argue with many of the predictions for the big risks and challenges that trustees are going to have to deal with in 2017. We’ve already seen the spectacular effects of increased volatility in the system and there are surely enough unknowns of the known, possible, and unknown variety to make it a permanent feature of the landscape for some while to come.

    Underlying trends in DB scheme funding, that have mostly led to greater deficits, are unlikely to be reversed overnight and the factors driving the gap in governance standards between larger and smaller (DC in particular) schemes will not have suddenly disappeared by the time the year rolls to a close.

    New pensions policy initiatives and legislation will seek to bring new thinking and new solutions to bear in DB and DC, but must inevitably make new demands on trustees in the process.

    With a limited supply of professional trustees and a small army of lay trustees, the glass could be seen to be half full

    So, with a relatively limited supply of professional trustees, all of whom need to be up to the mark, and a small army of lay trustees, who are faced with complex and important responsibilities and without whom the system would simply cease to function, the glass could be seen to be half full at best.

    But is that really a fair take on the prospects for occupational scheme trusteeship in the UK? Unpacking and understanding the issues in as much depth as TPR has now done, is a big step forward in finding workable answers to the problems. And many of the solutions it’s proposing must surely have a positive effect on the governance of workplace schemes overall.

    TPR can’t be expected to wave a magic wand over macroeconomic or geopolitical uncertainties, but it can continue to improve schemes’ resilience to them by leading the drive towards higher governance standards and by making a real difference to the range and relevance of support that trustees receive.

    It’s good, for example, to see overarching DB and DC codes and guidance being followed up with more detailed material (think funding, covenant, integrated risk management and so on).

    One of the tougher challenges was always going to be unpacking proportionality

    One of the tougher challenges was always going to be unpacking “proportionality” and in providing practical tailored advice, in particular to those smaller schemes that clearly lag behind in the governance stakes. But that doesn’t make it mission impossible and the regulator’s commitment to work with the industry to find solutions for that section of the pensions landscape is welcome too.

    The glass is unlikely to overflow in 2017 but with some goodwill and effort it should keep on getting fuller and that’s got to be a good thing for trustees and members alike.

    Tony Hobman was chief executive of the Pensions Regulator from 2005 to 2010. He currently chairs the advisory board of Lincoln Pensions

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