In part two of our investigation into independent governance committees, Louise Farrand explores what role, if any, member nominated trustees should have
With the Pensions Regulator in charge of the trust-based regime and the FCA supervising contract-based schemes, questions are often asked about whether it would be fairer for members to be housed under a single regulator’s roof, with schemes adhering to the same set of principles.
The two regulators are at pains to stress that they communicate regularly, and the FCA’s proposals contain frequent mentions of the Pensions Regulator, but in some ways their approaches remain, perhaps inevitably, very different.
Helen Ball, a partner at law firm Sackers argues the benefits of having just one regulatory body: “If there were just one regulator, it would be easier to lay down some common rules that are more simple, because if you look at the latest command paper, it’s sprinkled throughout with references to ‘The [Pensions] Regulator will do this and the FCA will do that and we’ll try and make it work together’.
“It would be more straightforward – and I don’t know if it would lead to a better or worse result – but if you’re a trustee or an IGC member, when you read through all these mountains of stuff, it’s not always clear who you’re answering to, and why it’s been written in that particular way. If there were one single regulator it might be a bit more consistent.”
For example, member-nominated trustees are a well-established feature of trustee boards. However, in the FCA’s proposals for IGC boards, the idea of scheme members sitting on IGCs is only briefly discussed. Although it is left open for individual contract-based schemes to decide whether to include scheme members on IGCs, the general inference is that these boards should be populated by experts.
Not everyone agrees with that philosophy. “I think it’s absolutely critical for the governance committee to have members of the scheme, because they are the people who have the best interests of the members at heart,” argues Girish Menezes, a principal at Buck Consultants, a Xerox company.
“If there were one single regulator it might be a bit more consistent”
Sarah Smart, chairman of trustees at the Pensions Trust, agrees with Menezes. She says: “Dismissing member representation so quickly strikes me as the easy way out. Introducing the diversity that member representation will bring significantly reduces the risk of groupthink around the committee table. It ensures that there are people approaching the decisions to be made from a different angle.
“It’s important to ensure that the representatives selected (or elected) have the right skills and the capacity to gain a level of knowledge and understanding to contribute effectively to committee business. This may be more difficult than selecting such people from the professional market, but it’s far from impossible.
“I think it’s absolutely critical for the governance committee to have members of the scheme”
“It just requires providers and committees to put a bit of thought into the nomination and selection processes, to ensure the right support’s in place for committee members and to have the right chairs in post – people who can actually lead and chair diverse groups of people, rather than simply people who know about insurance and pensions.”
Paul McBride, director of Legal & General Trustees Limited, isn’t so convinced, arguing that with the best will in the world, the vast majority of members will struggle to understand the sheer complexity of pension schemes.
“We undertake an awful lot of research among our members to understand what they think of communications, what they understand of what we’re telling them. We get their views on business-as-usual process, but in terms of decision-making, I’m not sure they are going to be able to contribute a huge amount.”
“It just requires providers and committees to put a bit of thought into the nomination and selection processes”
Sackers’ Helen Ball suggests a compromise. “The alternative of having something similar to what Nest (National Employment Savings Trust) has, like a consultative member panel, is a really good idea and maybe you could task one of the IGC members with being responsible for that.
“That would be a way of bringing in some form of member voice but without making them subject to the responsibility that they would carry if they were sitting on the actual IGC. I’m not sure you would find someone very easily who would want that responsibility!”