I found this article on Mallowstreet, a gated community for pension people. It is written by Sandra Woolf and its main contributor, Richard Butcher is both professional trustee and Chair of the PLSA. It is based on a press release issued by PTL which you can read here
It merits our attention as representing received wisdom.
Do trustees risk creating a ‘dangerous illusion’ about member voting input?
Giving members a ‘vote’ is a dangerous illusion that the industry needs to be wary of, professional trustee firm PTL has said.
The pensions industry should “proceed with caution when it comes to giving members’ the illusion they have voting rights on the shares in their pension schemes”, the firm argued.
Managing director Richard Butcher said that while voting is much talked-about at the moment, “when it comes to giving members a sense they have a say in those votes it becomes far more complicated and we risk creating a dangerous illusion for them”.
Butcher said stewardship is investors’ chance to influence companies, not least to make them become more sustainable. “But, and it’s a big but, most schemes invest in pooled funds which presents two critical challenges that are hard for trustees to overcome. First and foremost, due to intermediation, schemes rarely have ownership rights and are often several steps removed from the actual legal owner. Then there’s the issue of scale; a handful of schemes may command the attention of the managers, but the majority, in isolation, will not,” he said.
The ability of most schemes to influence is therefore “pretty weak”, he argued, questioning also the effectiveness of the threat of divesting from the manager. He said rather than creating illusions of power, trustees should focus on demonstrating to the members that their investments are doing good.
The issue of voting in pooled funds is currently being looked at by the Taskforce on Pension Scheme Voting Implementation, backed by the Department for Work and Pensions.
Also of merit – though for different reasons, are the views of Tumelo. Tumelo provides voting software so that members of pension schemes can indicate their preferences as to how the funds their money is invested in, vote. This article is written by Tumelo’s CEO – Georgia Stewart and appears on Tumelo’s blog.
Well, that’s Richard Butcher’s opinion. Here is ours:
Before using Tumelo, most pension members don’t really know what a pension is. They don’t know it’s invested in companies. They can’t explain the role of a trustee or a fund manager; nor the link between compound interest and their future financial circumstances.
It’s also pretty hard for them to comprehend the scale of the investment system, and the gravity of influence that system has on the world around them: the companies that win or lose; the issues – like climate or human rights – that are tackled or ignored.
I am a pension member in my 20’s. And if not for my niche passion for sustainable finance, I wouldn’t know this stuff. The wall of jargon and complication and fear that some professionals have built around pensions is so insurmountably high that, I, like most others, would never attempt to scale it. Rather ‘bury my head in the sand’, as our users often put it.
We created Tumelo so that members would truly understand their pensions and how important those trillions of pounds are for the future prosperity of our society and natural environment. Our solution gives transparency to members about where their money is invested; we help them communicate their opinions on issues to trustees and fund managers, and we show them the impact their savings are having on the world around them. That impact is thanks to the voting and engagement trustees and fund managers do on their behalf.
Richard is concerned solutions like Tumelo give members the “illusion of power” but there is no illusion. Members are powerful. Responsible stewardship is how fund managers address the global challenges faced by companies they invest in. But fund managers can only invest in those companies because pension members entrust their personal savings to them. These members have power by virtue of the choices they make: whether to invest at all and whom to invest with. What we need, in fact, is for members to feel more powerful. “Disillusionment“, as Richard put it, is surely only possible where there is already an illusion. Sadly, most members can’t even name their provider. Forget about using the power they have to change their own futures.
Richard also suggests that solutions like Tumelo “create a potentially dangerous scenario that could give rise to member dissatisfaction”.
Are there not 1.9 million people living in pension poverty in the UK right now? Is public trust in financial services not the lowest of any sector? Are satisfaction levels with pensions even measurable, when engagement and understanding across the board are so low? I’m not interested in naming names, because we’re in this hot water together, but if you care to check out these scores on Trustpilot you will see your members are unlikely to feel satisfied at the moment. Clearly, the industry has already created a “dangerous scenario” that does already give rise to member dissatisfaction. That problem is what we – and many others who we work with and admire – are trying so hard to address.
Richard is worried about member outcomes if we give them “a sense they have a say”. He says “In a worst-case scenario it could lead to opt-outs, a potentially disastrous unintended consequence that we need to do our best to avoid.”
Of course, there is risk associated with new technology and new ways of communicating with members, though most scheme trustees are well versed in risk-reward profiles. “Past performance is not an indicator of future returns” may hold true for investments, but it doesn’t for technology. We need only to look at the evidence from member behaviour over the past year. It is overwhelmingly positive. Using Tumelo reduces financial anxiety, increases confidence and prompts positive actions like learning and consolidation from pension members who were previously disengaged. Across demographic groups, members are engaging more often; proactively asking questions of colleagues; comparing their pension to other investments they might have. Even when the vote at a company goes a different way to a member’s opinion, they are glad to have been included and to understand the rationale for that decision.
Previously, trustees have struggled with unrepresentative member opinion. A few “ESG fanatics” who bother them frequently. Where member surveys might get 2% uptake, Tumelo is seeing upwards of 20% of workplace pension-scheme members engage; telling us what they think about ESG issues – not in isolation but in the context of their savings. And that information is being used by trustees and fund managers alike – those who are leading on stewardship – to shape stewardship priorities; to help them engage with companies in their funds and to decide what financial products to create for the members they serve. The opinions we collect from members are impacting their futures.
As Richard pointed out, PTL trustees will play a “vitally important role” in stewardship this AGM season. Therefore as a trustee, why wouldn’t you want to know what your members thought about the most important issues the world is facing? At Tumelo we are only helping trustees to gain that insight; to connect with members; and to create long-lasting positive, change in an industry that sorely needs it, to close the monumental savings gap.