Aviva plans GPP committee to boost governance

The launch of auto-enrolment and the government’s plans for pot-follows-member pension consolidation has fuelled the debate about the differences in governance standards at contract and trust-based schemes.

The Department for Work and Pensions recently urged the industry to avoid “black and white” discussions on the subject.

Aviva, which has around 500,000 members in contract-based arrangements, is in the process of undertaking a full governance audit.

John Lawson, head of corporate benefits policy, said its various subcommittees tended to operate individually and that the company was keen to change this.

While plans are in their early stages, a new group would oversee the various subcommittees currently in place.

“The trouble at the moment is we have all of these subcommittees that almost operate in silos. It is about how to create good governance in a contract-based world,” Lawson said. 

The company is looking to bring in external individuals to sit on the committee to avoid conflicts of interest, he added.

Improving governance

Competitor L&G recently announced it would be introducing an independent governance oversight committee for its contract provision, effectively extending what it has in place for its mastertrust (see below).

Paul McBride, director at the insurer's trustee arm L&G Trustees, said it opted for the governance committee route because it was "incongruous" to have different standards for its defined contribution arrangements.

“One of the things that is evident in the contract world is if a distributor comes to us with a proposition and says, ‘We’d like to add this fund to this particular scheme and use it as a default,’ we’re quite likely – or most providers are quite likely – just to turn around and say, ‘[Okay] when?’” he said.

McBride batted away criticism of a perceived lack of independent members on its committee, saying the same sort of deliberations that go on in the trust environment could be easily applied to its contract-based provision.

The disparity between contract and trust-based schemes has come under increasing scrutiny and introducing governance committees is one way for contract-based scheme providers to demonstrate that they are protecting and promoting members’ interests.

“However, there is still a debate to be had about how this all fits with the fact that, under well-established company law, pension providers’ primary duty is to their shareholders," said Francois Barker, head of pensions at Eversheds. 

Not all contract-based schemes are poorly governed, said Rona Train, senior investment consultant at Hymans Robertson. A committee that has clear terms of reference could be very effective, but independence has to play an important role in this, she added.   

"With lots of internal people on [a governance committee], making the decision to ever move funds away from the internal provider would be very difficult."