DWP: Avoid contract v trust governance debate
The government has said a “black and white” debate about differences in governance standards at contract and trust-based schemes is an unwelcome distraction from ensuring high standards across all arrangements.
It was possible for the industry to strive for the “best of both worlds”, said Bridget Micklem, head of private pensions policy and analysis at the Department for Work and Pensions.
If my suggested interpretation of governance – direction and management of delivery – is right, surely we want the best of both worlds
The government's intention to press ahead with pot-follows-member pensions consolidation meant good governance across all schemes was critical for the reform's success, she added.
“I would like to suggest, can we avoid a black-and-white debate on governance as part of the trust versus contract [argument]?" she told delegates at a Trades Union Congress seminar earlier this week on governance in defined contribution schemes.
"If my suggested interpretation of governance – direction and management of delivery – is right, surely we want the best of both worlds.”
Micklem argued that organisations like the National Association of Pension Funds were already trying to do this, using its Pension Quality Mark Ready benchmark as an example.
Earlier this month it was revealed that the government was considering legislating on further minimum standards for auto-enrolment to ensure schemes meet quality benchmarks.
Industry figures welcomed the plans, saying it could be an opportunity to tackle any disparity between different kinds of schemes.
Dr Debbie Harrison, senior visiting fellow at the Pensions Institute, Cass Business School, told the seminar a single pensions regulator could help to improve governance across the industry. She also said there needed to be further clarity on how mastertrusts are regulated.
“Both regulators need to sort out what mastertrusts are,” said Harrison. “They have been around for a while, but they are being used in a very new way and a lot of the providers that were in the contract-based market have come in with their flagship auto-enrolment schemes as mastertrusts.”
A significant number of such arrangements do not look like trusts as they have got “providers sitting on the trustee board”, she added. NAPF chair Mark Hyde Harrison said it was also important to know how much flexibility trustees of mastertrusts have in practice.
“When we look at governance in mastertrusts, I think it is good that there is some fiduciary duty, but I think the test which we must ask ourselves is can the trustees change provider?” he said.
“It is no good giving the trustees the actual power if the actual decision to change provider is so daunting because they would have to do it themselves with no money to spend on advice, or on handling the transition – that’s not a real choice.”
Hyde Harrison also questioned whether contract-based pensions were right for auto-enrolment, due to what he called their inability to “evolve”.