Maggie Roger has written a sensible article that explains why member nominated trustees are essential to good governance.
Increasingly we are seeing professional trustees taking not just the lead role but the only role as trustees. The view that schemes are professional because of their exclusively offer trustees is indeed faulty. I fear too often it is part of what is wrongfully called “de-risking” and is a means of placing compliance as the principle function of trustees.
Maggie Rodger has been a strong advocate of CDC and has spared me time whenever I have met me to explain the work she has been doing with the Church of England CDC scheme. She takes the responsibility of trustees not to market the scheme they are involved in seriously, so this work does not appear in her article but I can say (not as a trustee) that her and the involvement of the Association of Member Trustees in the selection of trustees, says good things about the CoE CDC scheme to come.
Maggie looks back to Royal Mail
The introduction of member trustees brought an insight into wider member views as well as governance balance. Member-nominated trustees (MNTs) have given confidence to members that their scheme is being run in their interests.
This was demonstrated recently when the Royal Mail member trustees were instrumental in helping their members understand and accept collective defined contribution (CDC).
I will not be shy in saying that CDC can take a step forward from common practice today of DB schemes in wind-up and commercial DC master trusts. CDC scheme can and (I hope) will have representatives not just of employers but of members on extended boards. The Pensions Regulator calls for a minimum of three trustees on a CDC Trustee Board but I think there is space for more at the table.
I absolutely agree with Maggie Roger when she says
New pension models, such as CDC, will rely for their success on good governance to ensure generational fairness in the design, annual valuation and balancing decisions. Value for money proposals in defined contribution (DC) stop short at the non- numerical concepts of stewardship and service quality. Since these DC models place all the risk on members, either individually, or shared, surely they should be involved in governance of these issues?
The work of the AMNT has been taken up by the TUC in there recent paper and campaign for more representation for members
You can download this paper here.
It is worth reading alongside Maggie’s Professional Pensions article which you can access from here.
There is of course a place for the professional trustee and all trustees including member trustees should be qualified to do their job. But to suppose that trusteeship starts and ends with compliance with codes is to forget who pension schemes are working for!
Well said Maggie!
When I first became a Secretary to a Trustee Board in the mid 1980s I was advised that the first key duty of a Trustee was to act in the interest of members, the second key duty was to question and challenge their advisors and not just to rubber stamp advice. These messages appear to have been lost over the following decades and replaced with a group think mentality and regulations that have embedded a belief that consideration of members’ interests must be solely determined by an analysis of risks.
I strongly belief that it was this false risk dominated approach that has resulted in many DB pensions schemes giving away a third of their assets by adopting an LDI investment policy or buying bulk purchase annuities based on a negative real gilt yield. What was the real downside risk which these arrangements were promoted as protecting against; when the pricing was based on the assumption that the scheme would if continuing without the LDI or buy-out “protection” would have real investment losses (at say 2% p.a.) in every future year? Similarly is it currently in the Members’ interest in a scheme in surplus to pay the insurance company premium to buy out liabilities at little more than PPF level benefits?
In Mastertrust DC and CDC do we have, or will have, Trustees who will have the courage of their convictions to sack the asset manager, scheme provider or owner, if they believe it is the members’ interest to do so?
We do need trustees, in both DB, DC, and CDC schemes who are not conditioned by training or experience in the status quo and a fear of deviating from the norm. Member nominated Trustees are an important protection but we must ensure that Trustee boards are not dominated by those whose training and experience limits their perspective.
Although I have relevant profession qualifications, am paid in the role, and have decades of pension trustee board experience, I refuse to categorise myself as a “professional” trustee.
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