If the Goode Committee were convened today, would it reach the same conclusions about pension scheme governance?

It is 22 years since Robert Maxwell's demise; 20 years since the Goode Committee delivered its report; 18 years since the passing of the legislation that those events gave rise to and 16 years (plus a few weeks) since compliance with most provisions of the 1995 Pensions Act has been required.

Setting aside Maxwell's well documented misdemeanours, what were the conditions of the occupational pensions world in the early 1990s that gave rise to the basic model of governance that continues (albeit somewhat modified by subsequent legislation) today? Looking back, it was a pretty benign landscape. Most trustees and sponsors had bought into the 'cult of equity' a decade or two before and by the early 1990s were roughly midway through the longest recorded bull market in equities. Most large schemes were flush with assets and the biggest risk (from an employer's perspective) was being bludgeoned by unions into granting benefits improvements to 'assist with management of the pension scheme surplus'. In such times, when the value of most pension assets was trending upwards and benefits payments were typically met out of members' contributions, the demands of pension scheme trusteeship might have been described as interesting, but not overly stretching. Consequently the major change in the trustee model introduced by the 1995 Act was the first legislation concerning member nominated trustees.

Roll forward to the present day and a re-formed Goode Committee would be looking out at a very different pension landscape. One in which private sector pension provision has largely transitioned from the defined benefit (DB) model to one or other variant of the defined contribution (DC) model. Whilst many employees still look forward to a DB pension accrued during an earlier phase of their career, those pensions will need to be paid from pension funds that are unlikely to achieve anything like true solvency in the foreseeable future.

Consider this analogy. Driving a car when fuel was relatively cheap and someone was regularly checking and pumping up the tyres was a pretty straightforward and for many a pleasurable task. But when the price of fuel has escalated and air is continuously leaking from the tyres, then the skill required to keep the car on the road is likely beyond that of most 'weekend' drivers. Being driven by a trained and experienced professional driver, who can spot dangers early and react in a controlled way to keep the car on the road would seem a preferable option, even if it may involve higher costs.

Put very simply, governing a pension scheme when there is more money pouring in than there is trickling out is a whole lot less demanding than when that financial position is reversed. So is it time to think differently about how schemes can be best managed?

Written by Mark Hodgkinson, director, Muse Advisory

mark@museadvisory.com