I’ve spent the last week suffering with something which I believe a large proportion of the population refer to as “man flu”. Whilst my wife managed to give birth (twice) and hardly ever mentions the pain involved *, I can’t seem to get past a cold these days without being utterly floored.
It has been an interesting experience in that, whilst struggling to see the keyboard at times, certain things suddenly become very clear. Particularly when it comes to pensions and specifically the way in which Trustee Boards act.
The thing about pensions, it seems to me, is that it should be so simple yet, it seems to be in the interests of many to make it as technically challenging as possible. A pension is merely a promise to pay someone a certain amount further down the line, to the point of their death. Not exactly difficult.
Despite the views of the Government’s Green Paper that all is broadly well, it seems to me that there is a real danger that every scheme in the land ends up with a multi-coloured Risk Register, an Annual Business Plan and a Chairman’s Statement, but the increasing majority of schemes might have little to no chance of actually ever paying the full benefits promised. The number of schemes buying-out in full could be easily outstripped by those which end up in the PPF. For every member who actually gets their 5% fixed increases in payment, another gets the PPF cap, benefits cut back to 90% and minimal increases.
It also strikes me that there are a number of basic errors that are being made by Trustee Boards. Errors which you don’t need to have studied the history of statutory revaluation rates to understand:
1) As a Trustee, the buck stops with you. Not your advisers. It is the advisers that get paid and you who the Members will look to when it all goes wrong. It is your strategy that you agree with the Employer. It is your meeting, not a chance for advisers to give a sales pitch (unless you ask for one).
2) You want advice from your advisers, not statistics. It is your duty to understand that advice. If you can’t understand it, it is not your fault, it is theirs.
3) Two-speed conversations (where one adviser argues with another in a language which, you the client, do not understand) have no place in your meeting room. I particularly despise the one where the actuary argues with the administrator especially when they work for the same company.
4) Administration reports should look at what went wrong and explain it fully. You shouldn’t be blinded by the 99% SLA. It is meaningless if the clock stops when something goes outside of the administrators’ in-tray. The turnaround time from the perspective of the Member is what is relevant, it is essential to understand any inefficiencies and whether they can be improved.
5) Investment strategy advice is just that – advice. It should not be a series of statistics which then lead to the sentence “but the decision is ultimately yours” which, although true, does not change the fact that you are paying for their expert opinion. What you want to know is the investment advisers’ views, insight and research not a re-print of fact sheets that you can get yourself from Google.
6) Exactly the same as for (5) applies to legal advice. Anyone can read Scheme Rules or study Acts and Statutes on the internet. The skill of a legal adviser is in giving advice, not reciting case law.
7) As a Trustee you want to understand the risks your scheme is running. Stochastic modelling need not be beyond the reach of a £10m fund, and need not be explained in a language you need a degree in maths to understand.
8) The Employer is more than welcome at Trustee meetings. The best outcome for members can only be achieved where the Trustee(s) and Employer(s) have a shared vision and strategy, and whereby each understands the risks that the other is running. Conflicts will arise and these need to be sensibly managed.
9) A Trustee should not simply point to the Regulator and say to the Employer “the Code of Practice” made me do it. You do it, because it is in your opinion in the best interests of the members to do it, and that is your job. And finally…..
10) Life isn’t going to get any easier any time soon. Gilt yields are not about to dramatically rise or, layer upon layer of Regulation immediately fall away or, deficits disappear and, it is unlikely that sponsors are going to suddenly sign-up en-masse for contributions ahead of dividends.
Forgive me if the above seems like the babbled ramblings of someone who has had one too many cold and ‘flu tablets.
But, isn’t there a danger that we focus on the most technically complex issues whilst missing the simple things that are staring us in the face? Pensions won’t get paid in full until sufficient funds are paid in, and those funds are used effectively. Effective usage need not be rocket science.
*this may or may not be true, depending on who is asking