Good Governance, really?

Written by PASA executive director Fergus Clarke
27/01/17

Its official – a large part of the pensions administration industry and many trustee bodies treat pensions administration as a very low priority. This is indeed a real eye opener when you consider the threats that exist in the market including the moves to scheme consolidation aired by the DB Taskforce at the PLSA conference in October, the regulators enforcement action against DC scheme trustees and master trusts let alone the DWP consultation on the future of DB schemes due in January 2017. One could surmise that only the strongest will survive. Will that be you?

Research in summer 2016, published by The Pensions Regulator, found that pensions administration and record keeping are seen as a low priority. In October 2016, PASA held a ‘Get Involved’ campaign. While we are grateful to those who did come forward, the silence from the clear majority of the administration industry is an indictment of the lack of interest that even professional administrators give to driving forward administration issues. And most recently we have seen DC scheme trustees fined for non-completion of their annual statements and master trusts similarly fined. Frankly, given the myriad of warnings, guidance and encouragement that the regulator and others have showered upon our industry, we deserve what’s coming. It’s time to grab the agenda and drive up pensions administration both as an agenda item and more generally around its quality standards. If the industry does not take this opportunity then we can expect to have an agenda forced upon us. Its time to choose.

This is a time where trustees espouse good governance. I am afraid that there is a big difference between tick box reporting on issues and good governance. In the same way that there is a big difference between quality assurance and service levels which are quantitative as opposed to customer service levels which are output oriented and qualitative. The former gets numbers on a report but ignores the customer service impact while the latter focuses on the quality of outcome to the customer, after all that is what a pension fund is, a fund full of customers.

This leads me to really question whether good governance over administration services is real or imaginary.

Administration is a key component to effective plan governance and management. Poor record keeping or poor performance do and will continue to have a material effect on member outcomes, unless we address the current deficiency in focus. Poor administration has the potential to negate the effort applied to optimising investment and funding activity to mitigate liability. What is it going to take to get administration taken as a significant contributor to overall plan performance and governance? Despite the regular attention to administration matters by the regulator, the industry generally continues to show little heed. I for one would not be surprised to see the regulator take a more draconian step and start to mandate on administration issues and, frankly, trustees and administrators will only have themselves to blame. There have been enough early warning messages and support.

The regulator has raised the game on data quality (common and conditional) and has published guidance on DC administration. But a research report published on 1 December shows there remains a deficiency on monitoring and acting on common and conditional data shortcomings.

The regulator has stated; “We expect the trustee board to consider administration as a substantive item at every regular meeting. We also expect administration, including key elements such as record-keeping, to feature on the scheme’s risk register”.

Trustees are encouraged by the regulator to ensure they have proper controls and governance mechanisms in place to demonstrate good management. Failure is sanctionable and enforcement action can follow. But I see no teeth bared for administration as I do for example in the failure to lodge a chairs statement for a DC scheme annually, or AE failings. It seems, from research undertaken by TPR, that for all things investment and funding the majority of trustees engage in significant effort to ensure these elements of the scheme management operate effectively. The regulator identifies in its discussion paper that administration and record keeping are considered low priority by some schemes, particularly at the smaller and medium sized scheme end of the spectrum.

Within the master trust world, the Master Trust Assurance Framework is a good step forward, but is it enough. Clause 28 of the control objectives of the MTAF, states:
“The performance and quality of all scheme advisers and service providers (including fund managers) are managed and monitored through application of formal agreements, regular documented reviews (for example assurance reviews) and service quality measures (including service level agreements). Trustees will need to determine what levels of assurance can be provided by service providers in the absence of independent assurance reviews, in the case of administration for example”.

AAF 01/06 is the appropriate assurance framework for administration but it itself is insufficiently wide enough to cover all the necessary components of a quality administration service. Which is why at PASA we researched and then delivered a framework of standards and accreditation to evidence the delivery of a quality service to scheme members. The MTAF itself while strong on its assurance framework, is deficient in its consideration of administration aspects as well capital adequacy. The measures under the quality assessment are not member benefit outcome related, they refer to the control environment, business continuity, training but nothing on procedures or process being fit for purpose, timely delivery of member outcomes etc. there is reference to having a service level agreement but no indication of what good looks like.

While the Pensions Bill may address the issues around capital adequacy there is also a need to address the quality of the administration service by enhancing the quality of administration and endorsing this through independent accreditation against a set of high quality member outcome related standards.

The regulator has made numerous suggestions (in various of its reports and codes over the years) that trustees should enquire whether their administrator has sought independent voluntary accreditation, such as the accreditation standards offered by PASA. They have also stated:

“TPR is considering what more can be done and published a discussion paper that continues the debate about how best to drive up standards of pensions trusteeship as part of our 21st century trustee initiative, which could include more robust enforcement action. Andrew Warwick Thompson also added: “It may be the right time to consider alternative solutions if segments of the trustee landscape cannot or will not improve.”

You cannot say that you have not been warned.

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