Governance and investment: What are the duties of employers and providers?

Rosemary Lemon: It is only now that employers are moving into a sort of nurturing role. It is not paternalistic anymore, but it is trying to help employees to understand. If you are putting somebody into a pension there is a duty of care around making sure that it works and that people have enough information to understand how it works.

The pension scheme consultants, providers and to a lesser extent trustees, need to talk to HR more about what kind of people are employed and what kind of people are in their pension schemes

Andy Cheseldine, Capital Cranfield

Most people do not have the confidence to choose their own investment funds. There is an onus on the employer to make sure they choose a default fund that is functioning properly and that is actually geared towards the choices members face at retirement.

Nasir Rafiq: When it came to choosing our investments, there was a massive discussion within Islamic Relief on it having to be Sharia-compliant. We concluded that it has to be Sharia-compliant because our donors would expect that. Governance has to be set from the top. The trustees had to sign that off and the executive had to then make sure that we get the best deal for all staff.

Jason Green: There still are a handful of pension providers that do not offer that range of funds, though. In one of the tools we give to financial advisers we have a set of filters in which you can put in scheme credentials: size of scheme, expected contribution levels. We ask, ‘Do you require ethical funds, Sharia-compliant funds?’ There are some providers that then instantly get removed from the analysis because they cannot deliver what you would need, as an employer.

Rafiq: Exactly, yes. As part of our governance review we looked at the risk: We are Sharia-compliant, what is the risk that comes with that? Then another discussion started; we have non-Muslim staff members as well so there should be options for them. The governance discussion was about the values of the charity – it is not just about us choosing to do this because it is our business model.

Pensions Expert: What are the main duties of the pension provider? 

Mark Rowlands: To my mind, governance a few years ago was done by very well-meaning but under-resourced hobbyists. There were a small number of professional trustees, there were a lot of boards of trustees who got a limited amount of training on DC and were then expected to be the hand on the tiller running the scheme in the members’ interest.

In the modern environment, governance looks at all aspects of delivery. Most employers are now increasingly recognising that the role of governance is to help drive outcomes. They want to employ professionals, either through outsourcing or through paid contracts, with professional trustees helping them. The employer’s role then can be around things within their domain and within their control.

Pensions Expert: Is it useful to engage a professional when assessing value?

Lemon: I think it is important to have somebody who gives you an external perspective. In HR, and certainly in reward, we know quite a lot about pensions but we do not know everything. We need somebody to come in who is a real technical expert but who can also give a wider view of what is going on in the marketplace and what the latest developments are. 

Ami Bartrip: Yes, that is really important. We want our reward package to be attractive to people and to keep people.

I see our role as knowing our workforce. We have a large proportion of our workforce in or around the 30–35 age category. These are the people that we want to encourage to be saving for their future. Therefore, that brings a slightly different lens to maybe if you had a different workforce and different challenges.

Rowlands: This is a really interesting point. I think one of the areas of scrutiny by the regulator right now is questioning those employers who do not necessarily have that understanding of their workforce, in terms of their gender mix, their age mix, but also some of the more attitudinal aspects, around attitude to risk and volatility.

Value for members is in the foothills of its development as a concept and, as an industry, we have latched onto the cost aspect because it is a hard number and it is easily measurable. Some of those more attitudinal aspects employers do not necessarily focus on as much. That is a mistake because it underpins how people can then develop and deliver value.

Pensions Expert: What can employers do to ensure the default fund is appropriate?

Caroline Roberts: That is an interesting one because I do not think there has been an awful lot of thought given to that historically.

However, now, thinking about default pension providers, I think that the whole value element is that much more important. It is something that is changing all the time. You want to deliver the best value for people. Again, it is looking at the changing demographics of the workplace.

Andy Cheseldine: Life was a lot easier when people had to buy an annuity. All bets are off now and it depends what people are going to do with their cash and when they are going to do it. It is a lot harder to understand what people do with their pension now.

The pension scheme consultants, providers and trustees need to talk to HR more about what kind of people are employed and what kind of people are in their pension schemes.

Rowlands: If we go back five or six years, the principle was: get members to engage, get them to use the modelling and risk-assessment tools, and then they will make a conscious decision as to what is the right fund for them.

It did not work. That is why you have seen a massive change in the industry now to put all its energy into creating the best default funds.

The role of the employer is to work with whoever they have chosen, be that an adviser, be that a product provider or a mastertrust provider, to deliver the very best default fund they can.

Roberts: If your default fund is the gold standard, that really sets the tone.

Green: On the point of the importance of having the best default fund you can offer, we always say, ‘If you go into a restaurant, you should be able to order the house wine because that should represent the restaurant and be a really good standard you should be able to rely on’. That is kind of how the default fund should be.