Mark Hodgkinson, director at Muse Advisory, uses an alternative tale to encourage trustees to think about how they can improve DC governance, before it's too late...
When a pension fund trustee died recently she encountered some unexpected difficulty at the pearly gates. It was Saint Peter's birthday so he was off-duty. As she pushed on the turnstile to eternity, a trusty lieutenant of Peter's challenged her:
Lieutenant: Hang on there. Who are you and why should I let you in here?
Daniella: My name is Daniella; I've led a good life as a loving wife, devoted mother and hardworking career woman. Please let me in.
Lieutenant: That's all good; very good in fact, but nothing unusual. Anything else?
Daniella: Well I was a trustee of a DC pension plan. I helped look after people's retirement income provision. I did it without pay and much of it in my own time. It was pretty demanding I can tell you. Umm, can I come in now?
Lieutenant: Oh, so you were a DC trustee ...hmmm. How long for?
Daniella: About six years.
Lieutenant: Oh, okay then. So what happened to members' pensions expectations over those six years? How much better did you manage to make them?
Daniella: Well actually they didn't really improve at all. In reality they deteriorated – quite a lot in fact. But it wasn't my fault! There was a global financial crisis, expected mortality was improving (or so I thought!) and bond yields simply collapsed. And we never had enough time to get everything done; something would happen and it would take us months to decide what to do, if anything. Stuff would get pushed off one meeting agenda on to the next and by then something else had happened and so on. And then we had to get concerned about auto-enrolment! I did try, I really did – please let me in.
Lieutenant: So did you and your colleagues ever stop and assess how well you were doing as trustees of your DC plan? Did you ever ask yourselves if there was a better way?
Daniella: Not really – in the time available we just tried to do what we could. Somehow there were always barriers to getting more done. Perhaps if we had made time to think about how we were doing, rather than just doing it, we might have learnt a few useful lessons and could have better protected members' expectations. Oh please let me in.
Lieutenant: I'm afraid not Daniella. But I tell you what – this is your lucky day. It happens to be Peter's birthday and so I'm permitted to send one worthy soul back to earth today. I judge that it would be premature to cast you off to eternal damnation amongst the fiery furnaces of the other place. Now that you have woken up a bit to the demands of good DC governance I think you may be more use back on earth. If I return you from whence you came, will you promise to rethink your approach to DC governance? To think in terms of member outcomes and the risks that need to be managed along the way?
You might start by looking at the material the Pensions Regulator is proposing should form the basis of future DC governance regulation; I'm not saying it provides all the answers but it's not a bad place to start. And if you can crack good DC governance then I'm sure you'll get a sympathetic hearing when you return here in due course.
Daniella: It's a deal. DC governance improvement is my number one focus, if not to infinity then at least through 2013 and beyond!
Written by Mark Hodgkinson, director at Muse Advisory.
