In seeking changes to pensions law and regulation, one of my guiding principles is achieving consistency – ensuring the same rules and protections apply, whatever pension you are in.
The Office of Fair Trading’s recent report is a welcome addition to the established direction of continuous improvement in workplace pensions. However, the report is silent on some parts of the pensions industry which, for whatever reason, consistently manages to keep its head well below the parapet.
One such group is non-ABI member group personal pensions. If independent governance committees are a good idea for ABI members providing contract-based pensions, and I believe they are, then surely they should apply to contract-based workplace pensions across the board?
Another area where this same group of providers is missing in action is disclosure of charges. Fourteen insurers are already working on disclosure of pension charges in pounds sterling within annual statements, starting next year. Are providers and master trusts outside this group going to be made to work to similar standards? Thankfully, the OFT did pick up on the fact that not all master trust boards are sufficiently independent from the administrator or investment manager that first conceived them. These are the ones that appoint a token “independent” trustee to add a veneer of impartiality over an underlying commercial bias.
The IGCs that these master trusts establish should, as the OFT points out, be able to carry out their fiduciary duties properly, shifting the default fund or administrator to another service provider when that would be in the members’ best interests. This marks the end of the commercial master trust experiment, in my view. What commercial provider is going to offer schemes via a master trust with a single charge of 0.3 per cent or 0.5 per cent, priced to break even in seven or nine years, when an independent oversight board can switch part or all of that charge income to another provider after two or three?
Nest appoints its service providers in a different way. Its administration and investment service providers know they might only be there for a fixed duration and tender accordingly. I would expect commercial master trusts to be forced by their new independent trustee boards to unbundle their underlying services and charges and sign proper contracts with the board to provide those services for a given term. No board in its right mind would commit to investment mandates longer than three years for most asset classes and Nest’s 10-year contract with Tata should act as the benchmark for the duration of administration contracts.
To enforce proper regulation in the master trust world – these schemes could have as many if not more members than GPPs – the Pensions Reg-ulator needs to get some new teeth. A regulator that needs to plead with those under its jurisdiction to “comply or explain” is not a regulator; it is a standards body.
John Lawson is corporate benefits head of policy at Aviva