Pension Funds Insider

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Whole lotta shakin’ goin’ on

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Jerry Lee Lewis recorded this in 1957, a year after Bill Haley’s film “Rock Around the Clock” had teenagers here dancing in the aisles and their appalled elders fulminating about the end of civilisation (as they knew it). Guy Opperman isn’t old enough to have witnessed that, but it seems he’s on a mission at the moment to shake up the pensions industry.

Following a recent speech to the Association of Member Nominated Trustees (AMNT) he might, in an earlier era, have been a candidate for one of H.M. Bateman’s “The Man Who . . “ cartoons.
As Minister for Pensions Mr Opperman is already working “hand in glove” with the House of Commons Work and Pensions Committee to combat pension scams. He’s pushing at an open door there. He’s also keen to see pension scheme trustees adopting ESG criteria in the investment policy, and this is where he’s making waves.
The Minister wants to shake up the fund management industry by enabling trustees to vote their shares in the companies in which they’ve invested. At the moment, often they can’t, especially where their investment is in pooled funds (which is where most schemes are invested, unless they are large enough for segregated mandates).
Mr Opperman is targeting “the overly complex and archaic voting infrastructure” – the way we’ve always done this, the asset managers might say – as well as underinvestment in stewardship generally. He wants to make voting policies and outcomes transparent, and warns of scheme-specific reporting requirements.
He’s recognised the frustration felt by AMNT members at the obstacles to implementing their own policies – and indeed compliance with new laws which require trustees to go beyond merely adopting and publishing a written (and sometimes anodyne) statement of investment principles (SIP).
Since October 2019 the SIP has had to be much more detailed, including the exercise of voting rights, as well as how trustees have factored environmental, social and governance (ESG) considerations (eg climate change) in their selection, retention and realisation of investments.
From October 2020 it also has to describe trustees’ arrangements with their asset managers, so things really cannot go on as they are. The days when most pension arrangements were large defined benefit schemes, whose trustees were more likely to have closer contact with their investments via segregated mandates, are long gone.
So the Minister has set up a Taskforce on Pension Scheme Voting Implementation, as a ‘task and finish’ group supported by, but independent of, the DWP. He’s given it a focused remit to recommend solutions which in the Minister’s own words “will allow asset owners to take ownership of their assets, however they invest.”
More than three years into the job, like the horses he used to ride our Pensions Minister has got the bit between his teeth. He’s also set up a cross-sector Working Group to recommend solutions to the proliferation of small pots. This isn’t a new problem: before auto-enrolment started the Government was minded to legislate for automatic transfers to create 'big fat pots', which it did in the Pensions Act 2014.
After the 2015 General Election though, the incoming Conservative Government was much more focused on pension tax reform and nothing was done to commence the ‘pot follows member’ (PFM) legislation. Overlapping with this hiatus, in December 2014 the FCA proposed a Pensions Dashboard to enable consumers to view all their lifetime pension savings (including their state pension) in one place.
This resurrected the principal original competitor for PFM, then described as an aggregator, or a ‘virtual aggregator’ by those who considered the primary need was to prevent savers losing track of their pensions, rather than continual consolidation during working life.
As we know, we’re still waiting for Pensions Dashboards (now plural) and not encouraged to expect anything to fully materialise before 2023. Nevertheless, the Pensions Minister has decided more has to be done and sharpish, to build upon analysis of the small pots problem by the Pensions Policy Institute in July 2020.
Mr Opperman is pushing other innovations too, especially to improve member engagement. Simpler annual benefit statements, ideally just two sides of A4, might result in members actually reading and understanding how their savings are going. In his enthusiasm for ESG he might be slightly ahead of the masses, but not by far: everyone is willing sustainability these days.
Superfunds are next on his agenda, to better protect members of smaller defined benefit schemes via consolidation.
What else might he decide is not working well – maybe access to financial advice?
Ian Neale, Director, Aries Insight