Pension pooling allows different international pension funds to ‘pool’ their investments. This is achieved through each pension fund investing into a single pension pooling vehicle (PPV). The PPV then invests into the underlying investments (global equities, bonds, cash etc) on behalf of the pension funds. This structure could significantly improve the risk management and governance of companies’ pension schemes.
In our experience, companies who implement pension pooling can realise the following benefits:
- Risk reduction through increased diversification of managers
- Lower transaction costs and reduced management fees
- Better control over manager and custodian selection
- Increased revenue from securities lending/commission recapture
- Enhanced reporting from a single global custodian.
Occupational pension schemes
Governance of occupational pension schemes (both defined benefit, defined contribution and hybrid schemes) tends to be more prevalent than for contract based schemes. With the Pensions Act 2004 requiring Trustees to demonstrate they have sufficient level of knowledge and understanding, this makes the need for good governance and robust policies vital to support this requirement.
We provide support to trustees in meeting their requirements around trustee knowledge and understanding by providing interactive Trustee training sessions. This helps trustees achieve and maintain a basic level of competence, understand how to deal with conflicts of interest and breaches of the law, the importance of establishing internal controls and keeping scheme documentation up to date.
We also work with [companies and/or Trustees] to review their pension scheme policy including their approach to funding, investments and administration. Our approach is to carry out due diligence on existing procedures including discussions with individual trustees, undertake a gap analysis versus best practice guidance from tPR (taking into account the specifics of the scheme) with the overall aim of developing a comprehensive and robust governance plan that is fit for purpose.
Contract based pension schemes
Whilst there is no legal requirement to establish governance policies and potentially set up governance committees for defined contribution pension schemes, there is an increasing trend for employers to do so with the aim of putting in place controls to aide good policy.
Research by the Pensions Regulator (tPR) shows that approximately half of employers surveyed had some sort of governance arrangement, ranging from informal to more formal procedures.
There are various benefits of engaging voluntarily in the running of a defined contribution scheme and our approach focuses on the five key areas identified in regulatory guidance from both tPR and the Financial Services Authority (FSA) which include:
- Administrative practices;
- Investment practices;
- Level of charges;
- Decision on retirement choices; and
- Member understanding
Our approach is to provide independent provider commentary and review, governance consulting and knowledge on industry best practice with the aim of working with companies to develop a leading DC pension policy.