With more than £2trn in assets, the value of UK pension funds is greater than the country’s GDP, and as such, an important target market for the global investment management industry. However abstract such sums may seem at first glance, this is real people’s money, saved towards a valued retirement income for themselves and their dependents.
Seen in those terms, the role of the pension trustee is critical. We are “guardians” of this vast reservoir of other people’s cash which is, of course, actually deferred pay and bear all the responsibility that comes with that role. If we fail to meet that responsibility, not only is the value of that wealth potentially diminished, but so is the outlook for the millions of people who are relying on it to provide them with a decent income in retirement.
Given that responsibility, are we collectively, as trustees, doing a good enough job as the guardians of our fellow citizens’ retirement savings? Actually, I would argue that we are doing a pretty good job. Workplace pensions have arguably been one of the great welfare success stories of the past half century, and are delivering valued income for millions of Britons in retirement, to the extent that, for the first time, average pensioner incomes are now on a par with those of working age people.
It helps that those charged with advising us and with managing those assets are predominantly good at their job, well-regulated and often incentivised to achieve good results. My question is not so much whether we have broadly done a good job, but could we be doing a better job?
Relying on the best intentions and good will of managers and advisers may be, broadly speaking, “enough”. But are trustees always as rigorous as they could be in holding their providers to account? Do we ask the awkward questions? Are we always satisfied that we understand what we are getting for our members’ money, and that there is no better alternative?
In short, is the contract between trustees and investment managers and advisers a “balanced relationship”? A couple of recent developments have thrown this question into sharper focus. In September, The Pensions Regulator wrote to selected scheme trustees to warn about excessive transfer values being paid out in some cases – the suggestion being that over-generous transfer payments could undermine the ability of some schemes to meet their obligations to the members who are “left behind”. Similarly, the Cost Transparency Initiative recently produced templates aimed at improving or standardising the transparency of fees paid by trustees to their providers.
I have no issue with either initiative as such. But each, for me, raises the worrying question of whether such hand holding should be necessary?
Any trustee board finding itself and, more importantly, its members, exposed to the risk of “left behind” members missing out, or of being anything other than crystal clear on costs, must have a serious case to answer. To put it in maritime terms, trustees who are falling short of the high standards expected of them by their members, should either shape up or ship out.
Rory Murphy is chair of trustees for the Merchant Navy Officers Pension Fund.