My recent blog pointing out that DB trustees tend to make bad DC trustees has gone down like a lead balloon with certain DB trustees.
I don’t think is surprising.
The next question is whether we can find a new kind of trustee who genuinely improves member outcomes.
In a recent article, Pinsent Mason’s Mark Baker argues that DC Trustees should be stating what their job is through the publication of a clear written statement of their purpose.Mark argues this statement should be in terms of how the Trustees intend to improve member outcomes.
I think that such a statement, if intended only to provide trustees with legal”protection”, is of no use. The statement of intent backed up by resolute “energised” action. Otherwise it becomes just another document filed under governance that nobody reads and is downloaded only when a negligence suit is in the offing!
SO WHAT DO I MEAN BY “ENERGISED ACTION”?
It is generally accepted that the biggest influence on what comes out is what goes in. There are now only two sources of contribution to a DC scheme (there used to be a third- national insurance rebates).
Source one is the contribution of the sponsoring employer. I have yet to hear of an instance of a DC employer lobbying employers for greater contributions. I have rarely heard of a DC trustee negotiating with a sponsor for a salary sacrifice arrangement where the majority if not all the NI saving is paid to the member rather than retained by the member. How many DC trustees engage with the sponsor on funding issues with the rigour with which negotiations with employers are carried out over DB recovery plans?
Source two is the contribution by the member. This is a different salary sacrifice, it’s a sacrifice of immediate gratification in exchange for long-term security; it’s the “spend on your future not your next night out” pitch.
CASE STUDY ONE
The job of a trustee is to engage-educate and empower. I once saw a man engage an entire nightclub in Maltby South Yorkshire with a saving presentation.
He had a large wooden CASE which opened on hinges into two display. When the man opened the first display there was an array of topless ladies
Right- when you finish work, d’you want out of that?
The second display was of £1000 worth of £5 notes pinned to the other side of the case.
Well lads, that means you’ll have to have plenty of this!
Getting engagement does not have to be subtle- it has to be effective and immediate- you have seconds!
If you’ve got people’s attention , you have a marvellous thing- their time! Don’t waste it, you have only a minute or two to make your point.
Why is your audience not saving ?
Can’t they be bothered?
Do they know how?
Do they have prejudices agains the savings vehicle?
In my experience, if you can make it easy to save , if you can give them an idea of how much to save and if you can address their (probably legitimate) prejudices against saving into a long-term vehicle – a pension plan – you are winning.
CASE STUDY TWO
In the 1990s I was a consultant to a large trust based DC plan whose trustees had worked out that the overall contribution structure wasn’t going to meet member expectations (comparable benefits to the old DB scheme). They agreed matching contributions with the employer which -if fully taken up- would then have given general comparability.
The Trustees also got a budget to employ me to go to the various sites to talk to members. Things were going well until we got to a northern brickworks where I was instructed to do my presentation outside. It was snowing and I objected. I was told by the site managers that his workers were on an hourly rate and he was paid on productivity. He wasn’t going to risk losing some of his bonus for the sake of some “pension rubbish”.
I made a complaint to the Trustees about this, the trustees took it up with the site manager who was reprimanded. We re-did the session and got good results.
For most people the next step they will take after hearing an engaging, educational presentation is towards you.
What do I do now?
If we can give an immediate action to people that can get them saving (more), then that is worth a thousand modellers.
Sure there is signposting to fancy kit and yes- we should encourage people to do the right thing the right way. But for most people, a simple form which asks them to commit to a new level of saving (either a % of salary or a nominal sum) , is the critical next step. Deliver it to their phone, or put it in their hand but make sure you get it to them as a next step!
Of course there are many other things that trustees should be doing.
They have responsibility for making sure the money invested works for their members and not for the 13 levels of intermediaries John Kay talks about.
They have responsibility for ensuring people in the DC plan know how their savings are growing so they stay engaged.
They have responsibility for making sure that the back office works so that people’s money doesn’t go astray
And they have responsibility for ensuring that help is on hand when people move jobs, retire or die.
DC Trustees who took on a job that had KPIs based on improving employer contributions, maximising employee engagement, improving financial education and empowering members to take their retirement planning into their hands would get my whole-hearted support!
If I went to a trustee conference where I saw people speak with the passion and commitment of that man in the Maltby minor’s club then I would applaud.
Sadly, many employers have given up on DC Trusteeship, they have gone the contract based route because they cannot see the point of DC trustees. I say sadly because I have seen Trustees who have engaged their members in a way that an insurance company or even an employer sponsored pension committee cannot.
The point of trustees is that they are independent of employers, they act for the member not the boss. They do not act for themselves.
But most of all they ACT. Turning up for four trustee meetings a year, reviewing various reports from service providers demonstrating they’v hit their SLA, does not constitute ACTION.
For some time I have been pointing to PICA statistics that showed that historically the take up rate of the open market option on trustee controlled DC benefits was only 25%, this compared to over 30% where an insurance company controlled the contract.
In all the time I have campaigned for greater ACTION from Trustees, I have yet to have one trustee engage with me on this issue.
DC Trusteeship has failed and is failing. There is insufficient energy among DC Trustees to justify their existence.
What is more they account to no-one, not to members or employers. They assume they have a right to be there and when that right is questioned, they get angry.
Well, I for one, would like to see anger from DC Trustees, I’d like to see something that equated to passion rather than the torpor I’ve witnessed over annuities, or member contribution rates, or contribution negotiations with employers or indeed over the fund governance issues which have led to the 2015 DC reforms.
We need energy and enthusiasm from DC trustees, we need a clear sense of purpose and above all we need effective ACTION. All of these things are lacking in the behaviour of most trustees I meet – I say most- I do not mean all.
There are according to tPR, some 48.000 standalone DC plan operating under employer trusts. Can we really point to more than a couple of hundred where trusteeship is working successfully?