Trustees and IGCs will have an increasingly important role to play in the DC pension sector to ensure good outcomes for members.
This was one of the main conclusions of a Q&A session at Corporate Adviser’s virtual Master Trust and GPP summit.
Capital Cranfield professional trustee Andrew Cheseldine points out that trustees have an expanded role to play and this includes issues such as spend on investment as well as other communication and engagement services.
Cheseldine points out that one of the questions for debate was what is a ‘fair’ profit for a master trust. But he noted that very few are at break even point, and the Covid crisis may push out the point at which some of these larger master trusts move into profitability.
He says: “Budgeting may be difficult, but there is a role for the trustee to look at what would add net value to outcomes for members. As master trusts move into profitability we would expect there to be extra money to spend on investment, which should help deliver improved outcomes for members.”
At the moment he says some may be reluctant to spend additional sums on investment strategies, when there may not be the evidence that it works. However he says evidence was starting to emerge of the importance of ESG strategies.
Sackers and Partners partner Ian Pittaway says that over the next few years he would expect the cost of ESG investment options to fall. “We are in a transition period at present, and in a few years the idea there would be an additional charge for a sustainable or ESG investment policy, or an impact on return will seem antique. These will be delivered for the same price or less that non-sustainable strategies.”
Cheseldine agrees and said that during this transition period providers should pay for these ESG backed strategies.
Cheseldine adds that trustees need to be alert to the potential financial impact that Covid could have on scheme finances. He says: “I don’t anticipate many schemes going to the regulator because of financial problems but there will be some master trusts that will struggle.
“This isn’t all down to Covid. I am aware of about three or four authorised master trusts that were on the market for a buyer prior to this.”
BESTRustees trustee executive Rachel Brougham says new regulations from the FCA will mean more stringent oversight from those on independent governance committees. However she says that while the FCA wants more of a focus on value for money, she points out that there are “huge practical barriers” that prevent some the committee from delivering on these goals.
She warned there is a danger that value for money will in some cases be boiled down to “charges, costs and performance” rather than looking at a more holistic range of services including communications and engagement.
She says: “It is a tough one. There is an awful lot of information to process. IGCs might look at this in relation to their own provider but it is a challenge to do this across all providers to determine whether a scheme currently provides value for money.”
She adds: “I understand where the FCA would like us to be , but there are practical challenges to getting there.”
There was debate on the panel of the role of the independent trustee. While Chesledine says he was comfortable working for more than one master trust, Pittaway said providers like Aegon preferring trustees to work for just one master trust.
“There is a lot of commercially confidential information so I can see it makes sense not to work for more than one master trust.”
The panel also discussed the growing trend for trustees to appear on provider ‘beauty parade’ pitches for new business. While none of them disagreed with this in principle, they all agreed that caution should be taken.
Cheseldine says: “Trustees have to be careful they are not selling the product, but simply giving facts. They are there to explain to a employer how in practice things are run.”
Pittaway says that in his experience it is preferable for the trustee not to be in the same room as the sponsor when they are pitching to clients. “It is preferable for them to have a frank discussion with trustees and the employer in a separate room. This should be a private discussion to avoid giving out mixed messages of whether this is a sales person or robust trustee.”
Trustees still have a vital role to play in looking after member interests and will need to be adept at managing conflicts of interests. Brougham points out that with larger schemes it tends to be the provider that drives investment strategy, but this still needs to be signed off by trustees.
She says: “There is often a lot of debate around whether strategies are suitable or not. We have politiely declined what the provider has put forward on occasion.”
Pittaway says it was important to build “constructive relationships” and ensure “good dialogue” with providers to manage these conflicts.
He says: “The role of the trustee has changed dramatically over the past five years.” Whereas previously there acted more as a ‘bare trustee’ now they have active roles to play on a host of issues, from ensuring scheme design is either net pay or relief at source, looking at accumulation and decumulation strategies, as well as ensuring financial risks of issues like climate change are taken into account.
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