I feel for pensions Chairs at the moment. In an effort to boost transparency and disclosure, the Financial Conduct Authority (FCA) mandated Independent Governance Committees (IGCs) to produce annual reports. Now there is much wailing and gnashing of teeth as these Chairs’ statements are evaluated by the industry, the media and the regulator. Similarly, Chairs’ statements from occupational pension trusts and master trusts are subject to guidelines, deadlines, and fines. 

The big question for me is, who’s the audience? Is it the regulator, is it the competition or is it the media? Is it about the dissemination of information? If so, to whom and for what purpose? 

The current focus is on what the Chair’s statement should contain, but little about who the audience is or its outcome.

Surely the audience ultimately needs to be scheme members and the employers who chose the scheme on their behalf? What does it matter to Chairs, as long as they produce what’s ‘required’ by the deadline? When I think statement, I think bank statement: one-way, factual, and pretty functional. For all the effort and resources put into getting pensions governance statements ‘right’, how effective are they as a communication?

I argue that the primary audience for annual governance statements should be members. Therefore, they need to be written in a way that delivers some utility. Once you know your audience it’s easier to focus on the purpose of the communication.

Communication does one of three things: it impacts what you know, it impacts what you think and/or it impacts what you do. This is particularly true for defined contribution (DC). In many ways, the introduction and proliferation of DC pension schemes has been like leaving the babies with the razor blades. Members need to take increased responsibility for their retirement futures. Unlike defined benefit (DB), many pensions decisions are now theirs and the consequences of these decisions can be profound over the long term.

One thing members need to know is that they can trust that their scheme is doing the right thing by them and that there is a someone looking out for their best interests. They need to know they are not being ripped off and that the IGC or trustee board is in their corner. 

But to get this from a governance statement, they must first want to read it. Why would a member want to read a Chair’s statement? Perhaps to get some form of validation that they are doing the right thing. That their retirement savings are being well invested and to have a reasonable expectation that the scheme will deliver on its (implied) promise to them in retirement. To know they are not being ripped-off, and that there is a group of experienced people looking out for their best interests. 

If, however, the annual governance statement is being evaluated as a tool for the regulator to assess the efficacy of the governance committee or trustee board, then let’s make it thus. Make it a tool to report against clearly set benchmarks of minimum performance standards that are measurable and comparable.

Can the same annual governance statement play both roles? In Melbourne I read a wonderful piece of graphite, it simply said, “If I was meant to read between the lines there would be words there”.

Now is the time for regulators to be more prescriptive, or indeed consider two forms of annual governance statements:

1.      An annual governance statement for the regulator, and

2.      An annual Chair’s statement for the members.

In this way, both audiences would get better outcomes. An industry standard format for reporting to the regulator would enable transparency and comparability between providers on value for money. An effective communication to members would provide peace of mind and the confidence to increase contributions. 

There is talk in the industry about extending governance statements to DB funds too – a true communication challenge. Before that step is taken, let’s be clear on who the audience is and make them work for members first.