There’s a great Vietnam war movie called ‘We Were Soldiers’. Mel Gibson plays the commanding officer who states: “I will be the first to set foot on the field. I will be the last to step off, and I will leave no one behind.” He gains the trust of his platoon and into battle they go.
Trust somebody and you both empower them and pass them responsibility. In pensions, trust is what makes scheme governance work. Admittedly, pension scheme trustees are a quantum leap away from soldiers, but trust is key to inspiring the confidence of members and employers alike.
Trustees have been a key element of DB schemes for decades, but for a long time, contract-based structures dominated DC. As auto-enrolment policy was heating up, however, companies and employees found renewed comfort in the trustee-led approach. DC master trusts emerged that swiftly became solutions for thousands of employers – and millions of members.
We’ve now had master trust authorisation and the formalising of some new roles – those of funder and strategist. In practice, though, nothing has changed for trustees. They have been passed both the power and responsibility for a clear mission – to ensure that everything promised to members and beneficiaries is delivered. Yes, the funder is critical to financing and entrepreneurially driving the enterprise. And strategists are vital in widening a scheme’s appeal and its market. But it is the trustee that holds the ultimate responsibility for all decisions and is where the buck stops. The old cliché still holds true – trustees can delegate but cannot abdicate.
The importance of good governance and clear responsibility has been brought into sharp focus by the challenges and uncertainty arising from Covid-19. This situation is creating a plethora of operational and investment issues that must be dealt with, some at breakneck speed. When courses of action are considered, the potential impact on members – and also employers – must remain at the forefront of the trustee’s mind.
Of course, it’s impossible to do everything. Trustees must work within natural constraints, particularly in the auto-enrolment space, with its charge cap and competition squeezing actual charges even lower. Governance budgets are finite, so trustees look to allocate intelligently to activities that can actually add value to members as well as covering all mandatory requirements.
In politics, if coronavirus has made one thing clear, it’s the difficulty of taking good decisions without adequate data. In DC pensions, trustees have the ultimate responsibility of assessing ‘value for members’, a somewhat abstract concept that can be challenging to quantify. Assessing value for members can be more art than science, but master trust boards are striving to apply consistent, practical metrics while recognising that the value of a pension depends on long-term comparison. This will involve harvesting more data and finding out what members think. Here, the trustee collides with a cosmic constant in pensions – that consumers are unlikely to have much of a view about a product they could be decades away from getting their hands on.
Pensions lack a near-term consumer imperative – but is catalysing such an imperative now becoming part of the mission?
A trustee board must be mission ready; a highly competent team with the capability, motivation and firepower to do the job effectively. It needs breadth of vision, front line experience, energy, determination and stamina. And it must also evolve and renew, as is happening with The People’s Pension, where I’m honoured to be starting a final term of office, chairing the trustee board on the next phase of its mission. In our evolution, I’m delighted that longstanding trustee directors Alan Pickering, Chris Fagan and David Maddison are being joined by two strong team players who set extremely high standards – Baroness Jeannie Drake CBE and Mark Condron. Given the fast- growing scale of The People’s Pension – and master trusts in general – there will certainly be challenges ahead, but first and foremost we’ll be working hard to ensure that we too leave no one behind.