Quantum Advisory's Phil Farrell looks at how pension schemes can improve scheme member representation and in doing so boost their scheme governance, in the latest edition of Technical Comment.
Although there were subsequent amendments within the Pensions Act 2004, the primary objective remained the same, namely improved governance processes and transparency for members.
Key points
Scheme membership committees can gauge the sentiment of scheme members
Written communications should be engaging and tailored
Surgeries with savers can provide another point of connection
A major requirement of the act is that the formulation of a scheme’s specific member-nominated trustee and member-nominated director process must reflect that scheme’s particular demographic, eg the weighting of active, deferred and pensioner members.
The act accommodated the potential for an increase in the minimum requirement for member-nominated trustee representation from one-third to a half of the trustee body, at a future date.
However, experience suggests limited interest is shown by scheme members to undertake the role. This obviously presents a challenge. Why do scheme members appear to be reluctant to put themselves forward for trusteeship, and how can this be addressed?
The most obvious deterrent appears to be the required level of technical knowledge and familiarity with scheme documentation that a trustee is required to understand within six months of their appointment.
The provision of a structured, comprehensive and ongoing training programme, delivered by pension professionals, is necessary. Simply pointing new trustees, not just MNTs, to generic training materials and learning the rest ‘on the job’ will not deliver the desired outcomes.
Couple this with the potential for difficult decision-making with one’s superiors, and the lack of appetite to assume the role of an MNT is all too clear.
However, member representation, in the context of MNTs, should not be viewed as the only way of promoting and achieving member engagement. A pension scheme trustee is obligated to act in the best interests of all his/her members. The fact that they may be company-appointed or an MNT is, or rather should be, irrelevant.
The following approaches could supplement, or in the case of a scheme that is unable to fill its MNT vacancies, act as a proxy to, the legislative requirements.
Scheme membership committees
The scheme membership committee’s aim is to canvass member opinion, collate ideas and convey the mood of the membership to a trustee board.
It is important that the committee’s expectations are managed: that its purpose and absence of decision-making powers are clearly defined.
This can be achieved through the adoption of terms of reference, the content of which is agreed between the committee and the trustees.
Written communications
These should be engaging and attention-grabbing member communications such as trustee newsletters, email bulletins and desk drops.
They can be tailored to each demographic of the scheme membership, eg contribution adequacy for younger members and retirement options for those approaching retirement age.
Good communications deliver transparency, which in turn promotes interest and member engagement.
Presentations and member surgeries
Running regular member presentations and member surgeries can provide a powerful way for trustees to connect with members and prospective members.
It also offers an opportunity to dispel any Chinese whispers, educate, and if delivered well, convey a strong sense of empathy to a membership, a task that is much harder to achieve when only employing written materials.
But each pension scheme will have its own issues and constraints, and there is no right or wrong when it comes to a trustee board seeking to engage with its members.
Phil Farrell is a partner at Quantum Advisory
