Governance is a slippery but vitally important concept
What can different governance regimes learn from each other, and how can we make sure members get the best possible outcomes regardless of the type of scheme they are in?
Today’s debate at DC Insight brought together representatives from the worlds of single trusts, mastertrusts contract-based schemes to examine this question.
Roger Fairhead, group compensation and benefits director and trustee chair at SABMiller, said the increasing regulatory burden was fast becoming an issue. Along with costs, he said this was pushing employers away from running a single-trust scheme.
The main question, however, focused on what governance actually means – and what trust boards and IGCs were there to do.
They’re there to oversee what decisions are being made
“Overall, they’re there to oversee what decisions are being made,” said Inder Dhingra, who chairs Aviva’s investment governance committee. “But then for some trustees it’s much more in-depth than that. There needs to be clarity of roles.”
What is critical is finding an effective mechanism to represent the voices of all members and employers
Otto Thoresen, NEST trustee chair, agreed: “A governance committee needs to have different roles and skills around the table: people who understand the risks, and can identify conflicts of interest. What is critical is finding an effective mechanism to represent the voices of all members and employers.”
The panel was divided over member representation, with Chris Wagstaff, head of pensions and investment education at Columbia Threadneedle Investment, maintaining that it is important to have members on a governance board to set a true balance of views. However, general consensus was that member input – but not active representation – was the best way forward in IGCs and mastertrusts.
The panel also focused on the issue of default funds, with Wagstaff commenting: “Good governance is ensuring that members have access to a fit for purpose default fund – with good asset allocation and genuine diversification.
We should also be nudging people in the right direction
“As trustees we should also be nudging people in the right direction, getting people saving as well as investing.”
Controversially, Fairhead suggested that the focus on an appropriate default fund can actually encourage people to disengage with the other choices available. He suggested using a cash fund could help engage members by making them pick a fund to invest in.
Fairhead’s fellow panellists were wary of this idea, but agreed that it is impossible to design a fund that suited all savers.
On the question of which governance model was most suited to the 21st Century, the panel was split.
Many employers have drifted into trust-based structures, with all the governance and support that entails
“Many employers have drifted into trust-based structures, with all the governance and support that entails. It’s often easier just to contract out now,” said Dhingra. “But it’s impossible to suit everyone, so the best employers can do is create a best fit solution for as many employees as possible.”
“There are challenges for both models [contract and trust-based] – not least the regulatory regimes being different,” added Wagstaff. “But if it’s well put together and well run, the trust-based model is very strong. We should look at how to best use them.”
Inderpreet Dhingra, Roger Fairhead, Otto Thoresen, and Chris Wagstaff, were speaking at DC Inhelesight. The debate was chaired by Richard Lee, partner, head of combined HR solutions, Gowling WLG.