A democratic way to improve DC investment.

ae infographicLittle noticed last week  , Legal and General opened the door to shed light on the decision making around the DC default it operates not just for its master trust, but its contract based and legacy DC plans as well .

This matters; L&G have auto-enrolled over 260,000 people since October of last year (in the same period NEST enrolled around 100,00. L&G are managing the greater part of the wealth so far generated by the new system.

I’ll quote from their press release a fuller version of the story is available here .

Legal and General (L&G) will introduce a “trustee-style” governance  committee for its contract provision, the company has announced.

The Independent Governance Oversight committee (IGO) is intended to bridge  the perceived gap between governance in trust-based arrangements and contract  schemes, L&G Trustees chairman Paul Trickett said.

Trickett, who recently joined L&G master trust’s governance board, will  also chair the IGO, alongside three L&G executives and PTL director Steve  Carrodus as an independent representative.

The committee’s primary focus will be ensuring the quality of defaults is  maintained, or improved where necessary, in contract arrangements.

Where there are existing employer governance boards the IGO will work  alongside them, but it will take sole responsibility for governance where no  oversight currently exists, Trickett said.

The IGO will be supported by sub committees and the independent investment  advisor, as well as additional support from in-house investment committees.

He said: “We will utilise the support infrastructure embedded for the master  trust so that our approach is consistent across the DC spectrum.”

L&G managing director of workplace savings Tony Filbin said the new  approach will introduce a level of “independence” not currently seen in contract  governance.

All L&G contract schemes will receive the new governance function,  including legacy schemes, but the charges will not be passed to members, Filbin  said.

He added: “Although there is a cost for providing this service, the benefits  of scale we’re currently seeing means that the base unit cost will go down.”

What good will this do? Well Steve Carrodus is my man. I will soon be investing almost all my pension savings in the L&G default and I for one am going to make sure this man Carrodus knows my views!

If he and his firm think they can just sleep through a couple of meetings a year and nod acquiescently, he has another think coming. (Actually I know this guy and he’s a good bloke- his firm a Force for good).

It is no good us reading about these things in the pension press and doing nothing. If L&G are serious – and I know they are – about improving governance, democratizing the process needs to go further. The views of the millions who invest through them .whether in live or legacy schemes need to filter through.

This is already happening. On the pension play pen linked in group, there is a discussion about the differences in governance between trust based and contract based pensions. In my view the difference should be wafer-thin. L&G have demonstrated that there can be equal opportunity for us to influence the debate on both sides of the argument.

This is what I wrote on the thread this morning

One of the things that works about DB trusteeship is that there’s something in it for Trustees- eg the prospect of a good pension for themselves (and most trustees would lose if the scheme went into the PPF).

Frankly , no such incentive exists among DC fiduciaries. Until L&G announced they were appointing an external trustee to its contract based board of control last week, I could not name (for sure) one individual who was accountable for decision making on defaults within insurers (and I’m supposed to know).

Insurers are frankly appalling at publishing the deliberations behind their decision making on investments which are not even shared with advisers- let alone made public generally.

Consequently there is little capability for the public to question, lobby or materially influence. With the exception of Fair Pensions, I don’t know of any consumer lobby group actively lobbying for better defaults.

This seems to be a roll for people who care about pension outcomes. Perhaps I should take this further.

I complained last week about the ineffectiveness of investment committees set up by companies to get PQM accreditation. Part of my frustration is that these committees have no influence with the providers of contract based providers.

Insurers like L&G has got to reach out to these committees and these committees have got to talk to L&G. Steve Carrodus – you and Paul Trickett and everyone else on the L&G master-trustee board and the IGO , have got to work with Tony Filbin and make sure that you are working together towards better defaults.

L & G have done a great thing. Adrian Boulding, who is another L&G man involved in all this (he also sits on the NAPF PQM advisory group) is also up to great things.

There is a door opening here and we should stick our feet in lest it close again on us. The responsibility for improving DC governance falls on all of us who care about making pensions better so come along and together we can make things better.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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