CDC must have a strong member voice

[TrueBlueTerrier]

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Tim Sharp warns the DWP's plans for collective DC risk establishing an inhospitable environment for the lay trustee

In an era when political narratives are often about control and trust, the launch of a new breed of collective pension provides a great opportunity to give members a stronger role in the governance of their savings.

Policymakers' attitudes towards the involvement of members in the operation of their pension schemes lack consistency.

On the one hand, we have initiatives like the pensions dashboard - ostensibly an opportunity for people to get a clearer view and greater control of their savings. And the establishment of independent governance committees was at least a half-hearted attempt to ensure insurers run pension money in members' interests.

On the other, the rise of the so-called professional trustee has eliminated the lay voice from the governance of many schemes.

Collective defined contribution (CDC) schemes, whose launch appears increasingly likely, are exactly the sort of schemes where a member voice in pension scheme governance is required. After all these are schemes where risks are shared between members and the employer role is very limited.

Unfortunately the government's consultation paper on CDC - with its emphasis on expertise and training - risks establishing, at best, an inhospitable environment for the lay trustee. This could lead to a further drift towards supposed professionalism and governance by industry insiders, not scheme beneficiaries.

Despite recent challenge, the member voice is cemented into part of our pensions landscape.

In trust-based schemes, trustees are required to act in members' interests. Most of these schemes are required to fill a third of trustee positions with those nominated by members.

This approach provides an opportunity for the inevitable conflicts of interest between employer and member to be addressed in the open. And ensures a diversity of perspectives in scheme decision-making.

In CDC the employer role will be very limited.

They might be involved in the establishment of a scheme. And will pay in contributions.

But there their responsibility ends.

Because risks, such as investment performance and longevity trends, will be shared between members, the TUC believes strongly that these very members should have at least half the seats on the trustee board.

The DWP's consultation paper (which closed on 16 January) instead implies that CDC schemes are somehow uniquely complex.

Undoubtedly, some will have tricky situations to manage, perhaps where the interests of one group of members have to be weighed against another.

But the answer to this is not a move towards a form of professionalism. After all, understanding of scheme members would be of major benefit in such a situation, something that member-nominated trustees can bring to the table. They can also help communicate these decisions clearly.

It should also be noted that in many existing schemes lay trustees are already called upon to exercise discretion in some complex situations.

The DWP's approach muddies the distinction between the roles of the professional adviser, such as the lawyer or actuary, and that of the lay trustee whose role is to listen to and scrutinise this advice before alighting on a solution.

Abandoning or muting the member voice would further reduce the diversity that, it is well documented, provides for better decision-making.

There should also be recognition of the role of members' workplace representatives. The Communication Workers Union has been central in developing plans for a CDC scheme at Royal Mail.

So where a CDC scheme has a contributing employer and there are recognised unions representing employees, these unions should be included in procedures for member representation and consultation.

Likewise, where there are changes to schemes investment and actuarial policies, these should be subject to consultation with members and their representatives from recognised trade unions.

A strong member role in the governance of CDC pensions is both an opportunity and a necessity.

Tim Sharp is policy officer at Trades Union Congress

[jetblack]

How about me being allowed to take the risks on my own shoulders - and have the final say about where my money is invested ? It is my money after all. I don't want or need experts thanks. I don't trust anyone with my money. i mean, I wouldn't even trust a friend enough to say "here you are mate...there's 10 grand....go and buy me a car" !!! So why would I trust a complete stranger/fund manager with 10's, if not 100's of thousand pounds worth of my retirement monies ?
Given the absolutely shocking level of fraud, incompetence and illegality that the financial sector has been implicated in (when managing other peoples money, in both the recent and not so recent past) I'd say I have a pretty good arguement.

But yep - the TUC has a point.However, I'd maybe have more faith in the CWU upper echelons having a say on the trustees board if they themselves were on the CDC also (incentives are everything) - but they are not. They are still on Career Average Defined benefit. Yep - thats right folks - Terry Pullinger, that great salesman of the CDC to the masses (ie. you and I) is still on DB - with up to 42% of salary pension contributions from the company.

The "company" is you and I again by the way, the CWU. Its a wonder you can keep a straight face Terry.

That aside, given that the CDC is now a foregone conclusion (as it was from the start) it is absolutely imperative that all the arguments from the DWP about the complexity of the scheme - this presumably the legitimation for us having our money managed for us by the "experts" (ie. their mates in the City/Wall Street) be given very short shrift indeed - and that there is maximum transparency, accountability and involvement BY US in the management of our funds.

We wouldn't want them putting our money into dodgy Collateralised Debt Obligations now, would we ???

[Jefferson Starfish]

Isn't Terry Pullinger employed by the CWU?

[jetblack]

Isn't Terry Pullinger employed by the CWU?

Yes.

His "company" pension contributions are paid for by you and I from our subscriptions - the union has next to no other source of revenue. Terry and his ilk are having up to 42% of salary paid to their Defined Benefit scheme.

Remarkable really. And thats me trying to be polite.

[Woody Guthrie]

I know this won't be a popular opinion but I don't think having inexperienced "lay trustees" involved in the governance of a pension scheme is necessarily a good thing.

Let's be honest it hasn't really worked out well for us in the past. The tendency with these people is to take an over-cautious view on investment strategy which at least partly contributed to the massive deficit in the original RMPP scheme and would be disastrous for a collective DC fund. I don't particularly want an ex-postie with an NVQ in arithmetic making decisions that could affect my retirement. Industry professionals are more accountable by the very fact that they want to remain industry professionals.