I’m watching the rain-soaked start of the Japanese Grand-Prix in Suzuka and marvelling at the organisation of a formula one team. What will get your driver first past the chequered flag.
Engine- tyre management -DRS- Driver – race management- reliability – the list could be the blog. But right down to the minutest detail- (like the tent that keeps the driver dry on the grid),it is the team that consistently gets most of these factors right over the course of the season, that wins the championship.
The more complex the factors that influence the race, the more important it is to back the team which has the management that can get it together over time- and this includes the funding of the operation.
Which is why we talk about Mercedes as the predominate team (while loving the battle of Hamilton and Rosberg)
Running a competitive workplace pension presents similar challenges to a Formula one team. While the engine of a pension is its fund, the fund manager is the driver. For NEST it is CIO Mark Fawcett who drives the car and he will hand his car over in due course. For a team like McLaren of Ferrari, great drivers come and go but the team goes on.
It was good to see in this weekend’s Guardian, for it to be analysing Fawcett’s decision making . We need more attention on the pension and though we are still in the early laps of a long grand prix, the more the national press talks about the management of our schemes, the greater the pressure on managers to “manage. More on this later.
Without a great engine the car has no chance, but there are other performance drivers- and workplace pensions need to deliver at retirement, need to interact with the sponsor’s HR and payroll systems and they need to have a sustainable business plan (pensions like formula one teams don’t always stay racing). Add to this list, the pension’s capacity to talk with its membership and the performance drag from charges (not just investment charges) and you can see why it’s all about management.
The pensions industry, as it is wont to do, cannot talk about team management but has adopted a fancy word to describe what workplace pension managers do – their fancy word is “governance”. The people who yabber on about governance often yabber on about ridding us of the word “pension “, nobody talks about “F1 Governance”.
The best way to predict the long-term performance of a pension is to look at the management of the team in terms of all of the factors mentioned above, But perhaps the most important factor to consider is the likelihood that high quality management can be sustained. In pension terms the bet is not over a season but a season of seasons.
There are a number of indicators that the management of a workplace pension is doing its job. There are standards they can subscribe to and codes they can adopt to. But at present the critical management structures are the trust board (for master trusts) and the independent governance committees (for contract-based providers). Some insurers who operate master trusts and GPPs need to run both management structures.
The new IGCs will be open to scrutiny (in a way that hasn’t been the case in the past). Trustee boards too need to open their doors. If your workplace provider is not prepared to share with you or your advisers how it operates, you need to be nervous.
Sadly, while we see greater transparency in the management of pensions, we do not see a commensurate interest from sponsoring employers and their advisers. The worry is that the high standards of transparent governance that will become obligatory from April 2015 will be allowed to slip because no-one cares to inspect them.
Which is why one of the three key metrics for the Friends of Auto-Enrolment is that it campaigns for employers to pay attention to the pension.
While many are talking about auto-enrolment not being about pensions, I doubt this resonates with those contributing a portion of their salary. For them auto-enrolment is all about the performance of the pension, for them pension management (governance) is everything.