Cracks show over member involvement as MPs debate mastertrusts
As the pension schemes bill on tougher mastertrust regulation is passing through parliament, some have called for making member involvement in mastertrust governance mandatory, but it is feasible?
Mastertrusts, the multi-employer DC vehicles largely used for auto-enrolment purposes, are predicted to handle the pension savings of more than 7m people by 2030 according to the Pensions Policy Institute, turning the spotlight not just on asset security, but also governance.
Debating the pension schemes bill earlier this week, shadow secretary of state for work and pensions Debbie Abrahams raised the question of member involvement in mastertrust governance, highlighting that in single-employer schemes a third of trustees must be member-nominated.
The involvement of those with an understanding of the member view can encourage greater trust in a system that often appears distant from the end beneficiaries
“Scheme members should be represented among the trustees of mastertrust pension funds. It is, after all, their money, and they have a direct interest in ensuring that a sound and sustainable investment strategy is delivered at good value,” Abrahams said.
Member involvement in governance has split the pensions industry in the past, and lay trustees have come under increased scrutiny with the rise of professional trustees.
While some have noted the value of lay trustees in creating a connection to the member base or acting as a ‘scheme memory’, the Pensions Regulator published research in 2015 suggesting lay trustees were less well equipped for their role than professional trustees, with poorer self-reported understanding of pensions law and ability to assess value for money in investments.
Diversity a key element in good decision-making
Tim Sharp, policy officer in the economic and social affairs department of the Trades Union Congress, said diversity of perspective improves the quality of decision-making, which is particularly important as these decisions can impact the future wellbeing of members.
“The involvement of those with an understanding of the member view can encourage greater trust in a system that often appears distant from the end beneficiaries,” he added.
Sharp said the authorisation of mastertrusts should be contingent on meeting standards for member involvement.
“This means ensuring there are effective trustees with knowledge and experience of a member viewpoint, as well as tools already used by some trade unions such as advisory bodies featuring trade unions and employers, and the establishment of a members’ panel.”
He added that governance in contract-based schemes was inadequate, and that therefore “we need a trust-based system rolled out across the pensions landscape to ensure that schemes operate in the interests of members”.
Member engagement remains a challenge
But the practicality of member involvement in a multi-employer scheme is an issue, according to Adrian Boulding, director of policy at mastertrust Now Pensions.
Boulding said that as larger mastertrusts cater for thousands of employers, the vast majority of them would not be represented on the trustee board.
Government urged to pick up the pieces of failing mastertrusts
The mastertrust legislation horse is being put before the cart now that the pension schemes bill has reached the House of Commons, as the debate is shifting to who will be the ‘funder of last resort’.
“If you start having MNTs, then in most cases they’re from a different employer, not yours,” he said.
Boulding also noted that employers might not be supportive of the idea. “One of the attractions of an employer joining a multi-employer is that you are completely disconnected from the other employers,” he said.
However, he agreed that member as well as employer engagement poses a challenge that needs to be addressed.
“There is a very key question in terms of how as a mastertrust do we properly engage with both our employers and our members,” he said.
The new mastertrust regulations are expected to come into force next year, after an initial consultation in autumn this year and a formal consultation in the summer of 2018.