Self-interest drew me to an interest in pensions’ governance more generally. I had two occupational pensions coming up before retirement. Both schemes were in difficulties. I became interested in pensions, and decided I couldn’t take for granted that these would be paid out and to take a more active role. I had some earlier experience of the subject in the 1990s, when I was a member of the court of the University of London’s audit and investment committee, before later becoming a trustee [of a commercial sponsor’s pension scheme from 2012].
The big change since the 1990s has been the arrival of more detailed and prescriptive arrangements, such as triennual valuations, statements of investment [principles] and employee covenants. There is far more rigour. The reason that took place is because both the main political parties have done major raids on pension funds. Lord Lawson took on schemes that were 100% funded in 1988, then Gordon Brown and Ed Balls did a ‘double whammy’ in 1997 [with the removal of tax credits earned on dividends]. The big threats to pension funds have been major government interventions which have overturned the apple cart. Following these changes, trustees have had to respond to extra rigour laid down by regulators. Trustees welcome this, though they have reservations about individual aspects, such as the triennual valuation, which is just a snapshot of the value of assets and liabilities on a particular date and can give a distorted picture.
David Weeks is a member-nominated director of a large engineering company’s scheme. In 2014, he was elected to committee of the Association of Member Nominated Trustees. He has first-hand experience of a scheme bailed out by the Pension Protection Fund. He completed all The Pensions Regulator’s Trustee Toolkit modules for DB and DC schemes. He is actively involved in the World Pensions Council. His earlier career spanned across the private and public sectors.
Most trustees are seen to operate on the basis of the quarterly meeting. What you should do between meetings is keep abreast of what the sponsor company is up to, such as reading its annual and half yearly reports as well as newspaper coverage, including on the industry sector in which it operates. And it’s important to keep abreast of the requirements of a particular scheme. I make it my business to go to conferences and seminars and stay up to date on industry thinking. I also talk to other members. The difficulty with being a trustee is you are acting a bit in isolation.
There are several key challenges I’ve come across during my time as a trustee. The first is determining what the appropriate level of investment is to meet life expectancy. Earlier [in my career], pensions were given at 65 but life expectancy was 67. Today people live much longer. The second is how pension arrangements should be related to long term care in later life. There is a U-shaped curve of expenditure in retirement. At the beginning, a retiree may want to use a sum of capital to pay off their mortgage or help their children get on the housing ladder, then their expenditure falls, but as they get older the need for capital increases in order to fund care. Another key theme is intergenerational. With a spread of ages and long term investments, there has got to be a better way of managing pools of money going in and out. The final issue to address is the balance between public and private pensions, especially in light of the new freedoms to ensure everyone isn’t going out and buying Lamborghinis.
We need people to be interested in pensions from an early age. They need to acquire the relevant numeracy skills and take an interest in what they are invested in. They need to understand what’s available: the security of an annuity and the price of insurance, or market returns, which are variable. Then the big issue is to leave enough money at the end for care.