I was recently interviewed on the telephone by a researcher for the campaign group for responsible investment
ShareAction.
They are rightly concerned that there is a move towards getting rid of independent member nominated trustees of pension funds and replacing them with "
professional advisers". This is my edited record of the interview.
Q. We’ve been asked by
civil servants to provide any instances of proof where having a member
nominated trustee on a board actually resulted in different outcomes, compared
with not including MNTs. What would you
say to this?
MNTs are often the only people from outside the often ‘cosy
club’ of providers, advisers and consultants who are actually independent. They
can be the only people prepared to ask difficult questions and challenge things
like fees and charges, whereas an adviser who is themselves on £100k plus a year
would not. And they are far most
sensitive about fees and charges because - it’s their own money!
MNTs are also often the only ones to really bring up Environment, Social and Governance (ESG)
issues. Many employers and providers pay lip
service to this and claim they think it’s important but ESG is never actually
an agenda item and often is not brought up at meetings unless the MNT brings it up.
MNTs are very dependent on their advisers, they don’t
actually run the schemes themselves after all.
But advisers don’t have a fiduciary duty, their duty is to their
employer or their firm’s partners. MNTs have a unique fiduciary duty to members and this is absolutely crucial.
Q. We’ve often heard
the criticism that pensions are very complex and MNTs just don’t have the
expertise to do the job properly. What
would you say to this?
‘Rubbish’. It’s not true at all. The Pension’s Regulator actually
over-complicates the system in some ways.
There are many actors in the system who benefit from this complexity,
the more complicated it is the more there is a need for experts to advise. The recent research into local government pension
schemes which showed active management to be a waste of money is evidence of
this. When I was first involved in
governing a pension scheme, in the early 90’s, we had 2 or 3 investment funds
– who did fixed income, equities and property for example. Now schemes have 10-11 funds. Its all got far too complicated and far too expensive.
If people can make money from complexity and being experts
than they will, it’s just the way of capitalism and a reasonable response to
systemic incentives.
Saying that, we do have to be honest that not all trustees
are up to speed, we are carrying some deadwood in the system. This is sometimes because they don't have the support or haven’t been given the
training, or they haven’t been shown why the training is really important.
Some MNTs are selected for the role, rather than being
elected, and I do worry that in some cases individuals are deliberately
selected because they won’t really
challenge the employer or provider. Its
human nature, if the people responsible for administering the pension scheme
choose who sits on the trust board, why would they want to choose individuals
who are going to give them a hard time?
I knew a really capable MNT, one of the best I have ever known, who who was kicked off the board because she challenged the scheme too
much in one respect. She refused to ever vote on a
matter if she hadn’t been sent the papers at least 24 hours in advance, she was
very diligent and capable but she was managed out of the role.
Churchill said "Democracy is the worse form of government - apart from all the rest". MNT's should always be directly elected by beneficiaries in my view.
Q. What is the biggest
challenge that you face in carrying out your roles as an MNT?
Getting sufficient time off work, to stay on top of all the
developments in the pension world and go on training courses, to do necessary
reading as well as attending the actual trustee board meetings. Some employers
are very good at giving reps enough time off to do these roles but others
aren’t.
Q. Is there anything
that we should be calling for the regulator to do to improve this situation?
There is already guidance that says that time off should be
given to trustees but this guidance needs to be clearer – for example it could
specify that time off is needed for reading and training as well as attending
the meetings. There is about a day’s
worth of reading to do for each meeting.
I don't think as a rule that MNTs should be paid for their roles,
as they are managing their own money, but the employer could be reimbursed by
the scheme for giving them the time off and if a MNT is out pocket, they should be fully reimbursed.
Q. Apart from
providing a fresh, non-industry perspective and asking challenging questions,
what are the other benefits of having MNTs on the board?
It gives the members confidence in the system when they can
see that they have their own representatives involved in governing the
scheme. This is essential because many
members have a real distrust of the scheme or the employer and this is
preventing them from saving enough.
In some good schemes they have an AGM once a year where trustees can
talk to ordinary members and often encourage them to join the scheme. Senior
management or PR type people just can’t talk to members in their own language
in the same way.
Member reps are essential for building trust in the system
and proper accountability. I have lived through so many scandals in the
Financial services industry, like Maxwell, Equitable Life, 2008 etc, and it should be obvious to
everyone that people from outside the industry need to be involved in
governance to stop foul play.
Q. We have been
calling for more schemes to hold AGMs, but hear the criticisms that they won’t
work, no one will come, it’s a waste of money.
What is your experience? Do AGMs
work?
Yes they do. Many schemes typically get very good turnouts.
I have been to AGMS of FTSE 100 companies where the turnout
was much worse than at a pension scheme AGMs – and the quality of questions was
poorer too.
Q. What kind of things
do people ask questions about mainly at pension scheme AGMs?
Benefits. And after
that ESG is the next biggest topic. Employers and providers are very nervous
about ESG issues but they aren’t actually doing anything about it.
Q. You’ve said that
ESG is on the radar of trustee boards and pension schemes, but what can be done
to move things to the next stage of getting them to act?
We need to get the message across that it makes good
business sense to incorporate ESG. This
approach is better for getting your money to grow in the long-term than chasing
short-term, speculative returns. The
funds I am involved in are not ethical funds, but they still care about
investing ethically because it’s best for the fund. There are still, unfortunately, a lot of
people out there who thing that ESG is just for tree-huggers
Q. What kinds of
mechanisms should schemes (trust-based and IGCs) put in place to open channels
of communication with members, apart from AGMs?
Schemes should have good websites and newsletters, where
they profile trustees. I have seen
organisations who do a ‘trustee of the month’ feature, for example, which works
well. Large organisations can also post
things on notice boards in communal areas.
Q. What have been your
proudest achievements during your time doing these roles in pension governance?
My proudest achievement is getting a proper reaction from
the fund management industry to the Rana Plaza disaster and other factory fires
in Bangladesh. A lot of fund managers initially didn’t get why this was
important and we had some very "difficult" meetings. We did succeed in convincing fund managers
to take appropriate action to try and ensure that this type of thing does not happen
again. This was particularly important
in my pension fund as a lot of scheme members are of
Bangladeshi origin.
The TUC, AMNT and UNISON stewardship networks have been very
useful for achieving these sorts of aims and I has seen how actions these
schemes have taken have filtered through to the wider industry.
Q. Any final comments?
Schemes need to recognise that it’s just not good for them
to shut out the members.
They should
welcome MNTs as these people help schemes to realise their own weaknesses.
The industry should know this.
There is no ‘
invisible hand’ regulating the
market. We try and keep schemes honest and successful. Nothing more and nothing less.
(I suspect that many will not know who is the person in the picture - it is mega pension thief
Robert Maxwell)
