93% of all UK households have internet access, according to the ONS. 87% of all adults access the internet daily. And 54% of over 65s have shopped online this year.

The era of smartphones combined with the power of superfast fibre and emerging 5G is transforming the country. We have never been more interconnected. It all started out with the Internet of Documents – the ability to access a variety of information via link directories like Yahoo and AOL. However, our virtual and physical worlds are now perpetually connected, including with people, across applications and via an array of smart devices. You can see who is ringing your front doorbell halfway across the world, warm your car seats while brushing your teeth and even look inside your fridge while in the office as you do some last minute food shopping.

The Internet of Things (IoT) is here and many of us use it every single day. It will make us more efficient, reduce our costs, improve our experience as customers and boost our productivity. However, will it ever pull the world of pensions into its vortex, or will we be the ones who got away?

A quick look at how IoT has transformed the world of banking and finance will help us appreciate why it is being touted as the next big thing and is in fact being called the ‘Internet of Everything’.

We are already connecting our finances through an ever growing number of smart and dumb devices: credit cards, ATMs, mobile apps, tap-to-pay mobile phones, card readers and smart watches. We can tap our smartwatch on a reader to pay for a tube ticket, buy a bottle of water out of an unmanned gym kiosk, hire a bicycle on the streets of London and even use biometric ID verification to access our bank via telephone and mobile apps. A number of banks have integrated with Alexa and Amazon Echo to offer voice banking features. You can check your balance, be notified of pending bills or check mortgage rates.

Financial services companies in turn are monitoring us via this network of information and devices. Insurance companies can insure us based on our driving patterns. Wearable sensors track employees in high risk areas in real-time to warn of potential threats and decrease fraud related to workplace accidents. Insurance companies are even exploring security, CO2 and moisture sensors for homes to limit their risk exposure.

On the positive side, IoT offers us an experience that is instant, contextual and provides insight. On the downside, we increasingly worry about security, privacy and control. The recent concerns around Amazon employees having access to recordings that could include violent, sexual or criminal behaviour is a good example of the repercussions of this interconnected world.

What can we learn from how IoT is being leveraged already to make some informed decisions on investment directions within the world of pensions?

The Pensions Dashboard is an excellent example of how IoT can be leveraged to add value within the industry.

The ability to pull together information across multiple pension arrangements, slice it in several ways and convert it into actionable intelligence is precisely the purpose behind IoT. However, this needs to be within a secure open standard environment, where data needs to be able to be channelled across multiple devices and manipulated into usable formats by a variety of organisations based on individual choice, and within legal parameters. Artificial Intelligence, immersive environments, gamification and analytics takes this experience to the next level.

The Pensions IoT needs access to clean core data: contribution rates, investment choices and personal assets under management. Only then can one leverage tools to make informed decisions, consolidate pots (virtually or physically), sweep funds to an arrangement with a better annual management charge (AMC), and access decision support frameworks.

A smartphone app is always interesting. However, in the world of IoT we need to be able to access our pensions via our watches, Alexa or a kiosk in the office. Why be paid a pension when we can make micro payments via a pensions virtual card on your smartphone? We all have our salaries credited to our personal bank accounts. Why not have our pension contributions credited to a personal pensions account? Addresses should be updated across multiple providers in real-time, as should data from death registers. Biometric ID verification will clamp down on fraud and remove the necessity for putting birth certificates, passports and driving licences in the post.

However, should we be thinking wider than merely pensions? Given the trusted relationship we have across our membership, could we connect to the extended IoT to create supernormal value for our members?
Other savings and retirement tools: better value ISAs, savings bonds and child trust funds?
Insurance products: Private medical, critical illness and income protection?
Discounted services: mobile phones, broadband, gas and electricity?
Retirement support: meals on wheels, online home visits and access to carers?

The Internet of Things can already transform the world of pensions. However, we cannot escape from the fact that until we clean our data and open this up within a secure open architecture network of applications and devices, our options are limited. This could create a clear bifurcation into the haves and have nots.

On the one hand we have the brand new Master Trusts sitting on new technology platforms and current data. Many of them are pushing ahead exploring the world of IoT. The current government looks keen to push these players into opening up their networks within a secure environment to enable value added services to members.

However, many DB arrangements and legacy DC schemes are focused on a near term buy-out, too crippled with large deficits to consider investing in data and technologyenhancing projects or are just out-of-touch with this emerging reality. It may well be the pragmatic approach to provide these schemes either with a carve-out or a minimum set of conditions they need to fulfil. On the other hand, there may be challengers who will find ways to achieve the required ends in a cost effective manner – with a little legislative help from the Pensions Regulator and the Pensions Minister.

In the Internet of Things, transparency, speed, flexibility and innovation will flourish. We will have to embrace it or get out of the way. It is not a hoax. In fact, it is already here.

Girish Menezes
Head of Administration – Premier Pensions and Member of the PMI Advisory Council

The PMI is focusing on technology at one of our major flagship events, the PensTech and Administration Summit on 7 November. Fintech is currently a buzz word within pensions but what does it all really mean and what can it do for members, trustees and scheme sponsors?

I was lucky to attend an FCA/ TPR hosted TechSprint where pension geeks and technology nerds got together alongside academics for a couple of days. We worked in teams of about ten to solve problems using technology. Within each team there was a variety of skill sets including machine learning and behavioural sciences. At the end of two days, each team presented its solutions.

Whilst rough and ready, it was truly amazing what could be achieved in a short space of time, and importantly, but often forgotten, that different areas of expertise are needed to create solutions. Technology can deliver efficiencies in administration and be used to engage and empower members. Complexity of legislation and scheme histories together with dodgy data and, in some instances, reservations by Trustee boards over whether using technology is appropriate for the members, has hampered our industry’s ability to make full use of its power. Some interactive websites for pension schemes are not cost effective but as economies of scale improve, these tools can be harnessed for the good of the members. Today, administration providers are making use of robotics to carry out administration tasks. One provider stated that it currently has robotics in place that do 20% of the transactional work it carries out. Another uses robotics and complex algorithms to carry out bulk transactions and segmentation of the membership for personalisation of messages from the scheme.

However, technology isn’t just about pimping up your administration platform or adding fancy modelling tools to your member website. It is part of a bigger picture of how we can combine the different technologies used to deliver pensions and work better together. How can we use the data we have accumulated over the years to greater effect? Technologies needed to deliver a holistic solution are starting to work together, for example, the Via Nova project allowed administration systems to send transactional information to and from investment administration systems. We have seen single and bulk DC transfers made easier through a trusted gateway and a number of administration platforms have integrated with asset and liability modelling systems for trustees to see funding levels. Although these initiatives are great, we need more, and we will see this when pensions dashboard comes along. Blockchain and its potential use needs to be considered but we must understand what it is and what it can do. If it does come into play in the world of pensions, we need to know what it can deliver, if it is cost effective and, given the complexity, if it would work for one or all parts of the industry. Hopefully the penultimate session for the PensTech and Administration Summit on Blockchain and AI will help enlighten us. So watch this space!

Lesley Carline – PMI President


As part of our new approach to pension regulation, we are now proactively supervising significantly more schemes as we strive to be clearer, quicker and tougher. Why have we made this change? Our aim is to better manage risks which we identify in the pensions market, ranging from inadequately funded schemes to insufficient record-keeping.

We are doing this by targeting hundreds more schemes through new initiatives across a broad range of areas. We are also building far closer relationships with schemes of strategic importance, and our latest Compliance and Enforcement (C&E) Bulletin highlighted how what we call ‘relationship supervision’ is going.

To date we have been working with 35 public service (PS), defined benefit (DB) hybrid and defined contribution (DC) schemes, and we will be extending this supervision to beyond 100 schemes this financial year.

Relationship supervision enables us to have one-to-one contact with the trustees, managers and sponsoring employers of pension schemes.

It helps us to assess the risks that schemes are subject to, clearly outline what we expect and act quickly where we have concerns.

Some schemes are chosen for supervision because of the risks they present or previous interactions we have had with them; others because they are of strategic importance to us.

One scheme featured in our C&E Bulletin highlights an attitude that we have heard from schemes: that they are wary of being selected for supervision. The word conjures up an idea of scrutiny and control. But in reality it is about advice, guidance and direction.

The chair of trustees and pensions director in this case expressed concerns about the value of engaging with us and the extra burden that supervision might place on the scheme. But they have since told us that it has been a positive learning experience.

The DC scheme historically had minimal dealings with TPR. Through our supervision, it was clear that while it was well run, we were able to offer a fresh set of eyes on a wide range of pensions issues, including suggesting putting in place succession planning for the chair of trustees and supporting the trustees in asking their external administrator for more detailed reporting.

Our new approach has also been noted by the industry. A survey by PwC found that eight out of 10 pension lawyers think TPR’s new approach and use of powers is having an impact on their clients. This is up from three in 10 in 2017 and is in part due to active intervention from TPR.

So far, our supervision teams have mostly seen high standards and well-run schemes. It is important to stress that including a scheme in relationship supervision does not mean we believe it is failing to meet our expectations.

Relationship supervision is not only focused on schemes of strategic importance. It also involves more direct contact with large numbers of schemes, using data we hold to target them in relation to particular elements of governance and administration. We’ll give clear direction about the standards that schemes are expected to meet and what the consequences of failing to meet those standards could be.

We have already begun to operate in this way. In relation to DB, we are initially looking at schemes where our data shows that deficit reduction contributions may not be proportionate against dividends paid to shareholders.

Our approach will be tailored to suit. We begin with dialogue, which leads to support and guidance and might move toward direction. If after this approach positive changes are not being made, we will move towards enforcement.

As well as relationship supervision, our new approach also includes event supervision, where our rapid response teams act quickly on reports of events which pose increased risks to schemes. This will generally involve events that affect the employer covenant supporting DB schemes, particularly corporate transactions or corporate distress.

We assess the impact of an event on a particular scheme and on our statutory objectives. Where we get involved, it is initially through the trustees as they are the first line of defence for savers and, if appropriate, we will engage directly with trustees, employers and other stakeholders to protect the interests of members.

This more front-footed approach was applied with the GKN / Melrose takeover, where we took the initiative and got involved much earlier than we would have previously.

It meant that much greater rigour could be applied and an outcome was reached with far less corporate anxiety and a better result for the pension scheme. Since the takeover took effect, we’ve continued to discuss the implementation of the agreed plans for the schemes with the trustees and with Melrose.

This is an approach we found beneficial for all parties concerned. Savers were protected, corporate entities learned, and we forged deeper and stronger relationships.

Where necessary, we will use our powers to prosecute people when they abuse their position and put savers at risk. We have used more of our powers, more often and been creative in using the law to protect savers.

We are testing our powers in the courts. We’ve prosecuted people for a range of offences such as fraud, making employerrelated investments, computer misuse, and wilful noncompliance with automatic enrolment.

But we are not an enforcement-led regulator. We’d much rather organisations worked within the law, within our guidelines and with us. We will not be complacent. As an organisation we will continue to adapt and change to meet the risks in the pensions landscape around us.

Our new long-term strategy, published for consultation later this year, will build on TPR Future and ensure we continue to be the clear, quick and tough regulator that we have pledged to be as we put the protection of savers at the heart of regulation.

Charles Counsell
Chief Executive – The Pensions Regulator

It seems cost transparency has come of age. We have MiFID 2, the FCA’s Institutional Disclosure Working Group (IDWG) and the follow-up Cost Transparency Initiative (CTI), and now the just-released House of Commons Work and Pensions Committee ‘Pension Costs and Transparency’ report. All of these lead to the inescapable conclusion that pension funds need to take cost collection seriously, and asset managers (and other suppliers) must accede to demands by clients for cost data. It really is as simple as that.

But it certainly has taken a long time to get here. I’ve been pursuing this outcome now for 11 years, but there were others before me. In fact, I first focused on cost transparency as an issue after an enlightening conversation in 2008 with fund manager David Norman who explained that what asset managers incurred as costs and what they charged to clients were two very different things. Up until that time, and as a management consultant, I had worked with asset managers to put together and rationalise operating models. Therefore, I had a very firm idea of the costbase of an asset manager. But what I really hadn’t thought about was how much asset managers and other suppliers actually charge institutional (or retail) investors for their services. David told me how much and something just clicked into place. My decade-long confusion about the pay disparity between financial services and other sectors (such as my former career as a Police Officer) evaporated. It’s why the FCA in its Asset Management Market Study (2017) highlighted that the average profitability of asset managers was 36%; an exceptional figure.

That level of profitability from your suppliers should be enough to make you, the institutional investor, pay attention and ask some firm questions about how much you are being charged. After all, their profitability is derived entirely from your assets. But it’s not that easy, it seems.

Firstly, asset managers are somewhat nervous about the issue of data; not only have they never collected it before and their systems are likely to be poorly configured for the job, but who knows what such data will reveal? Think St James’ Place and the deluge of complaints recently reported in The Sunday Times and Money Marketing about their charging structures.

Secondly, you the asset owner, probably have reservations too.

Perhaps you believe, or are being told, that the data isn’t yours and you cannot demand it. Well, simply put, it is yours and you can. How much you are actually shelling out for a service is possibly the ultimate expression of your relationship with that supplier, so demand away. Certainly, if someone says ‘no’ to your request then you definitely want the data, if in only on principle.

Perhaps you believe, or are being told, that net performance is all you need. Suddenly, you are instead told that you need more information than just net performance and that the way you are charged is actually incredibly complex, and multi-layered with both explicit and implicit components. The CTI templates are your guide to collecting and digesting these complex charges, but the templates are brand new and are, to those who have either loosely or never before asked for cost data, very confusing. I can say from experience that the reaction of some institutional investors is to say “Oh my goodness. This is so complex and I have other things I need to do. Let’s park this for now. And it’s probably going to cost us a fortune to collect and understand anyway. Let’s wait until next year”. On top of this, who knows what the results will show when the entirety of your third party cost-base is revealed.

The journey to cost and fee transparency is therefore not simple despite the efforts of the FCA and the CTI.

At least it is currently voluntary. But not, I suspect, for long. One of my regrets in writing the recommendations as Chair of IDWG was that I couldn’t mandate cost data collection by institutional investors. The FCA does not govern the institutional investor community (other than in Independent Governance Committee (IGC) world) and so this recommendation was not an option. However, if I read the Work and Pensions Committee report correctly, voluntary cost data collection using the CTI templates is likely to change.

Currently, only IGCs are required to report Value for Money (VfM) in their annual Chair’s Reports. Despite this compunction less that 25% of last year’s statements contained anything detailed or constructive on costs. Frankly, I, like Henry Tapper who reviews every statement each year on his Pension Playpen blog, am flabbergasted by this. To attempt to discuss VfM without raising the issue of how much you have actually spent is inconceivable; the very essence of VfM is ‘value delivered’ for ‘money spent’. The point is that IGC’s are required to report on the ‘money’ part and soon so will all institutional investors. The key phrases in the Work and Pensions Committee report are “…some trustees are making investment decisions without a clear understanding of how much those decisions cost…”, which echoes the original findings of the FCA and alludes to the CTI templates. Couple this with “…we are not convinced that there are sufficient incentives to achieve a high take up through voluntary disclosure alone…” and you have potential compulsory collection of data by institutional investors from asset managers using the CTI templates.

As if this wasn’t enough I can now say that those who are experienced at cost collection in some form or other get the best deals. That there are scale economies in procuring asset management is well known, but there are those pension funds that fall below the cost/size scale curves and these funds are those that have made efforts to collect cost data in the past.

And the longer you’ve been doing it, the better your information and the more strident your requests, the better your costs.

Asking and then negotiating, it seems, are the first steps to reducing your costs and improving VfM. This is a finding that echoes what happened in Holland when it introduced its cost collection framework some eight or more years ago.

How do I know this? I know it because I now have data. A lot of data. When I finished my time with the FCA I decided that, in the absence of compulsory cost collection, what was needed was something to make cost collection easy and cheap. So I built a cost collection platform to automate the process of collection and data analysis as much as possible. And because I want to complete the transparency journey, think of it as my quest, I have created it as a utility and it is therefore cheap. It’s called ClearGlass. And here’s the interesting thing: despite the bullish statements by the Work and Pensions Committee, it seems that funds really do want their cost data. Since our launch in January this year we have onboarded or are currently onboarding 175 pension clients with assets ranging from £100million AUM or less, up to £50billion AUM, with a total AUM of almost £250bn. This is in only seven months. These funds are of all types (DB, DC, Master Trust, Fiduciary), and use all types of products including private equity, LDI, hedge funds, credit, insurance-linked, as well as more routine strategies. In fact, we have obtained, or are obtaining, data on over 1250 products from over 180 willing asset managers.

We are also working with all of the large consultants to onboard their clients to the platform and our pipeline is some 2000 funds pending over the next 6-12 months.

I’m therefore pretty positive about the general direction of travel of cost transparency.

The point is, I have an empirical dataset (and I believe the largest ever assembled), on which to draw my initial conclusions.

Cost collection is, therefore, here to stay, and compulsory collection by institutional investors using the CTI templates is likely to form one of a suite of recommendations by the DWP. But how will you, the institutional investor, actually collect the data? There are several options: you can train your staff and do it yourself; you can ask your consultant to do it for you; or you can go to a third party specialist like ClearGlass. I’ll welcome you if you do choose to use us, but won’t be upset if you don’t. Everyone has a preferred supplier. But please remember this: ‘Collecting Costs should not be Costly’, so don’t pay through the nose. There are too many layers of cost already.

Dr Chris Sier
Chairman – ClearGlass Analytics, Former Chair – FCA IDWG

Companies are increasingly exposed to the financial risks associated with abusing human rights. With mandatory due diligence on the rise, it is time for a robust approach to upholding human rights. Many global companies have faced allegations of abusing human rights, either directly or indirectly. But even in cases where their role appears obvious, holding companies legally responsible is challenging.

Moving from reactive to proactive

Modern approaches to regional legislation are taking a new perspective on corporate accountability for human rights, with a focus on mandatory due diligence and disclosures for human rights. If rigorously enforced, we believe these laws could be proactive steps in upholding human rights, rather than just focusing on backward-looking assessments of liability. Companies can avoid regulatory action, costs, and reputational damage by establishing a robust approach to human rights in advance of these regulations. They can also enjoy the benefits of more efficient operations (particularly amid increasingly complex environments), higher supply chain productivity and enhanced brand value.

Why do we need change?

Current international laws are largely ineffective in holding large multinational corporations liable for abusing human rights. Some of the main barriers to successful litigation can include:
• weak regulatory regimes where abuses occur
• jurisdictional ambiguity because of increasing globalisation
• the separation of legal liability between owners and companies (known as the ‘corporate veil’)
• victims lacking the resources to pursue lengthy legal processes.

As a result, victims of abuse can ultimately be left with no legal recourse.

In 2011, the United Nations’ (UN) Guiding Principles on Business and Human Rights (UNGPs) marked significant progress in clarifying the role of businesses and states in upholding human rights. The subsequent UN Guiding Principles Reporting Framework, which has been incorporated into prominent reporting and management standards, helped the model to work.

However, since the UNGPs and reporting standards are not legally binding, many continue to view them as discretionary. While corporate social responsibility and sustainability reporting have become relatively commonplace (93% of the largest 250 companies globally now publicly report on sustainability issues), the quality of human rights disclosures tends to be inconsistent and non-substantive. This makes it difficult for stakeholders to hold companies accountable. Companies leading the way in this space and demonstrating good reporting practices include H&M, Nestle and Anglo American plc.

Efforts to challenge these barriers and to encourage meaningful disclosures are ongoing. Regulators in the UK, the European Union (EU) and Australia are focusing on more proactive requirements for companies, aimed at stopping abuses from occurring in the first place. This includes mandatory due diligence and disclosure laws.

New legal requirements

The lack of consistent reporting has created demand for mandatory reporting requirements, with a strong focus on demonstrating sufficient due diligence processes. Laws already in place in the UK, US and EU – such as the UK Modern Slavery Act (2015), Section 1502 of the Dodd-Frank Act (2012), the EU Non-Financial Reporting Directive (2014), and the California Transparency in Supply Chains Act (2012) – have inspired some of the thinking in other countries. Some of the new laws and proposals are detailed overleaf.

  • Child Labour Due Diligence Law, 2017 (the Netherlands). This would require companies to determine whether child labour exists in their supply chain and to establish an action plan to address it. The law passed in the House of Representatives, but it is still to be approved by the Senate.
  • Corporate Duty of Vigilance Law, 2017 (France). From 2018, large companies with operations in France must establish and implement vigilance plans, and include this in their annual report. The plan must address the risks of environmental damage and human rights issues. Austria, Italy, Luxembourg and Germany are considering similar initiatives. And non-governmental organisations (NGOs) in Finland are calling on the government to do the same.
  • Responsible Business Initiative, 2018 (Switzerland). Large Swiss companies would be legally obliged to incorporate due diligence across all their business activities (including overseas) to ensure respect for internationally recognised human rights and environmental standards. The bill was adopted in June 2018, but the Council of States is still to vote on it.
  • Conflict Minerals Regulation, 2018 (European Union). Largely inspired by Dodd-Frank, EU regulation requires importers of tin, tantalum, tungsten and gold to comply with and report on supply chain due diligence obligations. This covers whether these minerals originate from conflict-affected and high-risk areas. The regulation takes effect on 1 January 2021.
  • Modern Slavery Act, 2018 (Australia). Similar to the UK, the Australian Modern Slavery Act requires companies to report annually on the risks of modern slavery in their operations and supply chains. It also includes the actions taken to assess and address those risks. The act took effect on 1 January 2019.

Costs and benefits for companies

For many companies, compliance with the new requirements will necessitate material operational and disclosure changes. This inevitably comes with costs, but the benefits should not be overlooked. A robust approach to ensuring respect for human rights will help companies to avoid potential legal penalties. But it will also offer competitive advantages by smoothing operations in complex environments, increasing supply chain productivity and protecting brand value. While the laws mentioned in this article are all within developed countries, many of the laws target large multinationals and they have a strong focus on supply chains.

As a result, the impact should ripple into other parts of the world – ideally raising standards across regions and facilitating the promotion and enjoyment of human rights globally.

However, the success of these efforts depends on how rigorously the laws are enforced, and it is still early days for many of them.

We are encouraged by the action taken thus far and we are optimistic about further progress.

We will be closely watching the response of regulators and the companies in which we invest.


Emerging corporate human rights laws demonstrate a new way of thinking. They are moving away from backward-looking assessments of liability towards demanding proactive approaches that prevent harm. This could result in meaningful change, improving standards globally, while offering competitive advantages to businesses. We are cautiously optimistic as the success of these initiatives depends on rigorous enforcement of the new laws.

Important Information

Investment involves risk. The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not a guide to future results.

Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments.

United Kingdom: Aberdeen Asset Managers Limited, registered in Scotland (SC108419) at 10 Queen’s Terrace, Aberdeen, AB10 1XL. Standard Life Investments Limited registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Both companies are authorised and regulated in the UK by the Financial Conduct Authority.

Elizabeth Meyer
ESG Investment Analyst – Aberdeen Standard Investments


You may have missed the announcement of dance group Diversity’s ‘Born Ready’ anniversary tour, but you will likely have spotted the Pension Regulator’s (TPR) July consultation on the ‘Future of trusteeship and governance’ in pension schemes.

TPR is asking for views on whether legislative change is needed to promote diversity in trustee boards, including requirements for trustees to report publicly on their efforts to do so, for example via the DC chair’s statement. It also asks whether more could be provided by way of tools and guidance, sharing best practice across the industry. In a landscape of increased regulatory pressures, what should trustee boards be doing now to make sure they are diverse?

Are trustees ‘born ready’ to make the necessary changes or are there any issues holding them back from promoting diversity amongst their ranks?

What is diversity?

In theory, the trustee board model should be ideally suited to diversity. However, a lack of range in the composition of pension scheme boards is something that has been recognised for a number of years, with the average ages of members on, and gender ratios of, typical trustee boards not reflecting the member profile of most schemes. And although age, race and gender spring most easily to mind, diversity goes far wider. TPR is clear that trustee boards “need to make every effort to attract and include” trustees “from all backgrounds to work in the industry”. Its 21st century trustee campaign highlights the importance of diversity in terms of societal demographics, expertise and skills (including skills such as the ability to negotiate, influence and communicate). Ideally then, boards should be looking to have a range of individuals with diversity of background, skillset, experience, personality attributes and seniority level.

Why does diversity matter?

TPR’s view is that pension boards benefit from having access to a range of skills, points of view and expertise, as it helps to prevent significant knowledge gaps or over-reliance on a particular trustee or adviser, and supports robust discussion. It states that there is strong evidence that diverse groups are more effective at decision making.

TPR also points out that research shows that if governance boards reflect the diversity of the people they represent, their ‘collective life experiences’ will improve their capacity to understand the challenges faced by each member of their scheme.

Diversity can help refresh perspectives, and reduce unconscious bias and potential failures to recognise issues that impact on different savers.

What does diversity mean for trustees?

When looking at the diversity of a trustee board, it is important to consider this in the context of the membership of the relevant schemes, rather than as society as a whole. To truly reflect their views, a trustee board should ideally be as diverse as the membership it represents.

Amongst themselves, trustees should discuss the issue of diversity, and acknowledge that:
• similarities in age and gender need not mean a lack of diversity in terms of societal demographics, skills and experience, for example.
• diversity in race, gender, age, or background is not tokenism, and rather than being mere quota-filling, brings real advantages.

One of the key issues for trustees improving diversity is that of trustee appointment. For example, where the power to appoint trustees sits with the employer, the trustees do not control who becomes a trustee. And in terms of the one-third membernominated trustees required by legislation, the views of the membership need to be incorporated into the process. Trustees should consider recording that diversity will be an area they assess when interviewing nominees as part of a selection process. In an election, trustees could notify members that they may consider diversity as a factor when making their choices. Ultimately, of course, a candidate’s suitability in the round is more important than diversity alone – although diversity is of course a factor in determining that suitability.

What can trustees be doing to improve diversity?

TPR is clear that it does not believe that diversity quotas are desirable, necessary or even workable (for smaller schemes in particular). Furthermore, TPR is clear that its emphasis on diversity is not intended to force schemes to remove good trustees with valuable skills.

What steps a trustee board decides to take will depend on the circumstances of that board.
• A good starting point would be to review the current levels of diversity, asking trustees for views on the composition of the board and their aspirations as to what this could look like in the future. TPR recommends its skills matrix and board evaluation tools to help schemes understand and address gaps. A trustee diversity policy could then be drawn up.
• Trustees should review the usual means, and the style, of communications with members, both generally and in particular in relation to trustee elections. Is the tone too formal or potentially alienating? Consider how the trustees are presented, and explain what diversity means to your board and the benefits the board sees it as having.
• Make the current board more accessible. Give information on the individuals who make up your board, and find opportunities for them to meet with the membership to encourage a greater diversity of strong candidates.
• Consider mentoring applicants for trusteeship who miss the cut but who would make good future candidates.

Will this impact good governance?

Reviewing diversity in the composition of the board should go hand-in-hand with a review of governance more widely.

A natural follow on step is to take a look at the effectiveness of the board itself to ensure that all ‘diverse’ views may be shared, and all directors contribute to the running of the scheme.

It will be interesting to see the responses to TPR’s consultation, any resulting legislative changes and additional regulatory burden on trustees going forwards – and whether the policy has the hoped for effects.

Emily Rowley

Associate – Sackers

Poor levels of governance in pension schemes needs to be addressed.
We see problems across all schemes, but particularly in small DC arrangements.

That’s why we have recently launched The Future of Trusteeship and Governance consultation, a key theme of which considers solutions for reducing the number of poorly run pension schemes.

The evidence is stark. The 2019 annual defined contribution (DC) survey report, shows that just 4% of micro schemes with between two and 11 members, and 1% of small schemes with between 12 and 99 members, are meeting all of the Key Governance Requirements.

The requirements which DC schemes are subject to include trustee boards having the knowledge and understanding which is necessary to run a scheme, process core financial transactions promptly and accurately and provide value for members. Such low numbers of schemes meeting these standards is clearly unacceptable.

We’re not against smaller schemes per se. Where we come across well governed schemes that are providing good value to members and providing good investment options then we don’t have an issue. It’s where we see governance that doesn’t meet our standards – and unfortunately that tends to be more the case with smaller schemes – where we have the challenge.

We previously worked to address this challenge with our 21st Century Trusteeship campaign. It set out to those running pension schemes, and their advisers, what good governance looks like. Over 10 months we covered 10 areas which trustees should focus on to run a scheme well, including managing advisers, proving value for members and ensuring a board has the right skills and experience.

The campaign received good engagement from people who were already trying hard to run schemes well and to provide good governance, but less so among trustees running smaller schemes. They tended to remain disengaged. With smaller schemes in particular we have found, when we have challenged them, trustees believe that what we say doesn’t apply to them because they’re a small scheme, that The Pensions Regulator doesn’t have jurisdiction over them or they don’t have to comply with the legal requirements. The challenge for us is how to tackle that. How do we get those running schemes to engage with us to understand what the requirements are on them?

The Future of Trusteeship and Governance consultation, which is running until September 2019, sets out our proposals.

One is putting an accredited professional trustee on every board. We would expect a professional trustee to understand the requirements which are applicable to the scheme as well as highlight what resources we have provided to help trustees to run a scheme better. They are also more likely to have knowledge or experience of situations which may arise and know when the board needs support from advisers.

It’s clearly not an idea we can implement immediately – there are many schemes and relatively few professional trustees. But as consolidation continues and we look at ways we can both build diversity in pension schemes and encourage more people to become professional trustees, we hope to reach a point in the future where a professional trustee on every board will be achievable. Another suggestion is to implement a minimum standard for trustee knowledge and understanding as well as a requirement for ongoing learning, to ensure they have, and maintain, the knowledge and skills they need to run a scheme.

We have questions about whether sole trustees are able to effectively run a scheme, both in terms of challenging sponsoring employers as well as not having diversity on a board. The consultation invites industry views and we’ve already had representations from professional trustees about how they manage the risks that we’ve identified. It is really useful feedback because we’re trying to build evidence, both good and bad. We’re open to ideas and the paper very much tries to stimulate responses. If other people can think of ways of getting disengaged trustees to engage with us, to improve their levels of governance and ultimately protect savers, then we would like to receive those.

Find our more and respond to the consultation at www.tpr.gov.uk/ trusteeship

David Fairs

Executive Director of Regulatory Policy, Analysis and Advice – TPR

Summertime is traditionally quiet in terms of legal and regulatory developments, but this year is an exception. Here are a few highlights from July.

An uncertain bill

At the time of writing, the timetable for the next pensions bil is uncertain. It was reported in early July that the DWP needs more time to legislate for new models of defined benefit consolidator schemes. However, we are still expecting a pensions bill (possibly in October) to grant new powers to The Pensions Regulator (TPR), facilitate the pensions dashboard and define collective defined contribution schemes. Frank Field MP has written a letter to Guy Opperman MP, asking for clarity.

Negligent misstatements

On 11 July 2019, the High Court issued a judgment in which it considered a police authority was liable for negligent misstatement. The authority had issued correspondence to retiring police officers referring to ‘tax free’ pension commencement lump sums, when it ought to have known that the immediate re-employment of the police officers in a civilian role would trigger tax charges. The tax charges would not have been triggered had the officers taken a one-month break in employment, but they did not do so as they were not made aware of this requirement. This is a simple summary of some complex issues, but it serves as a reminder of the care that is required when issuing member communications. The case also illustrates the complicated status of communications between employers, scheme administrators and scheme members.

Consultation and guidance

On 29 July 2019, the DWP issued a consultation to bring into legislation the Competition and Market Authority’s (CMA) Order in relation to investment consultancy and fiduciary management services. Following the CMA’s recommendation, TPR issued draft guidance for consultation on 31 July 2019 to help trustees comply with the new requirements. TPR’s consultation includes how to choose an investment model, objective setting and competitive tendering for fiduciary management services.

Clarity (and good news!)

TPR has issued a statement confirming that it will be consulting later this year on changes to codes of practice to reflect the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018. These regulations, which came into force on 13 Jan 2019 as a result of the IORP II Directive, require schemes to establish an effective system of governance proportionate to the size, nature, scale and complexity of their scheme. The regulations set out what TPR must include in its codes of practice. Trustees will need to be able to demonstrate that they have an effective system of governance within 12 months of the publication of the updated code.

Whilst undertaking this review, TPR also plans to combine the content of the current 15 codes of practice into one shorter code which will be “quicker to find, use and update”. This will come as very welcome news for those who struggle to find their way through the jungle of TPR’s material.

Lynn M. Housecroft
Professional Support Lawyer – Squire Patton Boggs (UK) LLP

The Pensions Regulator (TPR) has launched a consultation on the future of trusteeship and governance, which closes on 24 September. The proposals cover trustee knowledge and understanding, diversity on trustee boards, the role of professional trustees and sole trusteeship. The overarching theme is one of improving governance standards and TPR has a clear message for trustees of underperforming defined contribution (DC) schemes; improve or consolidate.

All my sins

The 21st century trusteeship campaign was an important first step on the road to better governance, but we all know how hard it is to connect with trustees who are not already engaged and motivated. This is particularly true of DC schemes with less than 100 members.  TPR’s 2019 DC survey showed that less than 5% of these schemes are meeting all TPR’s key governance requirements, with over half meeting none of them.

How do you know if your scheme is meeting TPR’s governance requirements? Try asking yourself these questions:
• Have you recently assessed the knowledge and competencies of the trustees?
• How difficult was it to explain the trustees’ assessment of value for members in the latest chair’s statement?
• Have you assessed the effectiveness of the scheme’s internal controls for financial transactions?
• When was the default investment strategy last reviewed?

Outrageous fortune

TPR’s research suggests that many trustees of smaller schemes think they are doing a good job, with more value placed on ‘the personal touch’ than on meeting governance standards. It can be tempting to dismiss this as bureaucratic box-ticking, but TPR’s real concern is that poor governance leads to poor member outcomes.

David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at TPR, published a remarkably frank blog alongside the consultation, in which he says: ‘Bad governance means [DC] savers will have less money in their pots for retirement. Is that fair? No.’ However well a trustee knows their members, it is difficult to argue with that.

Slings and arrows

TPR are setting their sights on schemes that are missing governance targets. They plan to dig deeper into the running of these schemes, asking specific and direct questions to identify which schemes are not being run properly.

TPR are considering ways to help schemes improve their governance, including simplifying the TKU guidance. However, TPR are clearly taking a tougher stance and we should expect to see more trustees being fined where regulations are being breached.

Fly to others

Where schemes are either unable or unwilling to meet the required standards, TPR will encourage the trustees to wind up the scheme and transfer members to either an authorised master trust or another suitable arrangement. TPR’s view is that larger arrangements such as these benefit from economies of scale and generally have higher governance standards than the average scheme.

A sea of troubles

The increasing pressure from TPR could leave some trustees with a difficult choice. Find the time and resources needed to bring the scheme’s governance up to scratch, or hand over control to a larger arrangement that may deliver better outcomes for members? That, ultimately, is the question.

Ricky Marsh
Senior Consultant – Aon

Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority. Aon Hewitt Limited Registered in England No. 4396810 Registered office: The Aon Centre, 122 Leadenhall Street, London, EC3V 4AN

Colleagues in the wider pension industry equate the public sector with defined benefit (DB) schemes and are often surprised when I talk about the work we’ve recently done on our defined contribution (DC) schemes and the value that those schemes provide for our members through added flexibility and choice. So I’m particularly pleased to be involved in this DC focused edition of Pensions Aspects magazine.

We established a DC Additional Voluntary Contribution scheme in 1988 to help members save more for retirement and added a stakeholder arrangement in 2002. This secondary scheme was intended to help those who for personal reasons, perhaps financial hardship during a divorce, wished to opt-out of their defined benefit scheme. After opting-out they can join Partnership and employers will continue to contribute on their behalf but they do not have to contribute themselves. They can then opt back into the DB scheme when they are in a position to do so.

The DC market has changed markedly since 2002 with the introduction of auto-enrolment, master trusts, pension flexibilities, and digital platforms, so we took the opportunity to review our provision in 2016 and reaffirm our commitment to DC. We chose to go further too, seeking to deliver better value for members, improve access to flexibilities and reduce administration costs by initiating a DC transformation programme. Where we had a mix of statutory and contract schemes delivered by four providers we now have a single master trust arrangement with Legal & General.

This change has allowed us to give our members access to the full range of pension freedoms, which complements their DB provision and provides additional flexibility. Particularly notable are the availability of a flexible or temporary income via income drawdown or the option to take lump sum payments on an ad-hoc basis.

Alongside improving access to pension flexibilities we also considered the support provided to members when they are considering taking benefits to ensure that they understand what the options mean for them, particularly drawdown, which demands continued engagement with investments. I was therefore pleased to see the FCA publish the outcome of the retirement outcome review on 30th July, which confirms their intent to:

• Introduce ‘investment pathways’ for consumers entering drawdown without taking advice
• Ensure that consumers entering drawdown only invest mainly in cash if they take an active decision to do so
• Require firms to send annual information on all the costs and charges paid over the previous year to consumers who have accessed their pension.

I can see this will enhance the value of the flexible benefit options whilst minimising potential pitfalls.

Historically our DB and DC worlds didn’t meet and DC was seen as the second class citizen. Perhaps in a world where jobs were for life and salaries increased progressively with age and experience that was the case but in the modern world any individual is likely to build up a portfolio of pension plans including DB and DC products. We have learnt a great deal during our DC transition, lessons that we are applying across all our schemes.

It’s time to breakdown the silos and address common issues in making pensions accessible, engaging members, protecting the vulnerable, supporting diversity, ensuring effective governance and providing products that meet the needs of members throughout their lives.

The featured articles in this edition (September Pensions Aspects) address many of these points and I hope will help you develop your thinking whatever your scheme type.

Debra Soper
Chief Operating Officer, Civil Service HR – Cabinet Office