The Pension Play Pen met for their 21st consecutive lunch on Monday August 1st to discuss whether we still needed DC trustees.

Jenny Davidson made the point about her company which had developed all the monitoring tools needed to measure the performance and manage out risks relating to its workplace savings plans and found the trustees of its legacy DC plan were harmful to the employee value proposition. I have heard anecdotally of similar issues at BT and Logica, both of which have moved from Trust Based to contract based DC provision recently.

Steve Barker argued forcefully that without trustees providing investment governance, we would see a DC world devoid of progress in developing default investment management. A discussion ensued about whether Trustees did in fact raise standards and the room divided between those who considered they provided robust protection to members against the natural tendency of the providers of services under contract to “club seals” and those who saw trustee decision making as slow and inappropriate for the needs of members and indeed sponsors.

The comments on investments broadened to consider other of tPR’s 6 DC outcomes including  demululation options,  switching to retain best in class provider and treatment of deferreds who otherwise get ignored.

Nick Spencer pointed out that one challenge for Trust led models is whether they have the time and resources to take prompt and effective oversight of all these issues. I provided a  statistic that only 33% of members in contract based schemes, and  worse 25% of members Trustee based schemes use any form of annuity broking . This suggests there is still a significant gap in the most basic of these requirements- a gap not being addressed by Trustees.

Alison Hills mentioned that she had been surprised by the lack of engagement among DC trustees who often seemed unclear of their roles and unfocused on their duties or what they were expected to be delivering.  A general discussion ensued with telling interventions from  Simone Utermarck , David Joy and Tony Woodward  on the competence of DC Trustees and the committment of employers to the management of the schemes which they sponsored.

The argument moved on to discuss Mastertrusts with interesting contributions from Philip Bradish of the Pensions Trust and Peter Weiner (inter alia a trustee of the Pension Trust). The feeling in the room (as notably articulated by Martin Freeman ) was that Mastertrusts were the logical half way house between turst and contract based models and that, were pensions being set up with best outcomes for members in mind, they represented a model that could deliver value to members through economies of scale that made good governance practical and affordable.

Steve Busby , speaking as a DC provider was eloquent on the lack of attention being paid to legacy, in particular to members in DC arrangements managed by insurers that had effectively closed for new business . A hat was tipped to Stephen Tiley for his campaigning for members with high legacy charges for whom no champion (but Stephen exists). This part of the discussion progressed to include the fate of leavers suffering loaded charges under what is euphemistically called the “active member discount”. The racking of charges for ex employees of workplace schemes is not exclusively reserved to contract based arrangements (many occupational schemes stop subsidisingadmin chargers for deferreds) but it was felt that trustees generally did a good job protecting the interests of deferred members and were in a position to protect all members against the adverse impact of a provider withdrawing from the market.

A vote was taken at the start of the lunch that showed  7 lunchees preferring the  trustee based DC arrangement to 6 preferring corporate governance. By the end of the meeting the ratio had moved to 8 : 5 suggesting that on balance the Play Pen stood by the principle of independent fiduciaries albeit with reservations surrounding their competence.

I was reminded during the conversation of a problem I had with my computer when I added Norton’s anti-virus program when the computer was already protected by anti-virus software. Neither program was poor in itself but neither could work with each other meaning that though there was zero chance of my computer being infected, the machine hardly worked

Perhaps the final word should go to David Joy who wisely opined that the quality of DC governance for a workplace scheme depended ultimately on the capacity and committment of the sponsor. Here her to that.

In attendance

Steve Busby- Zurich International

Tony Woodward- Independent Funds

David Joy- First Actuarial

Philip Bradish- Head of Pension Operations Pensions Trust

Peter Weiner- Pentrus

Jenny Davidson- CSC

Charles Tatham and Steve Barker  of Barker Tatham

Nick Spencer-GAM

Simone Utermarck- S & P

Martin Freeman- JLT

Alison Hills -Wedlake Bell

Henry Tapper- First Actuarial

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