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TPR lacks 'realistic remedies' for master trust conflict of interest

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  • TPR lacks 'realistic remedies' for master trust conflict of interest

UK – The UK's Pensions Regulator has yet to propose any "realistic remedies" to the conflict of interest inherent in the trustee boards of master trusts, a policy officer at union umbrella group TUC has warned.

However, Craig Berry stressed that board independence did not necessarily equate with good governance and called on the Department for Work & Pensions (DWP) to show leadership on the issue, which he thought had been overlooked in a wide-ranging paper on workplace pension reinvigoration published last year.

Berry also praised the consultation launched by the Pensions Regulator last month.

Examining the future of regulation of workplace defined contribution (DC) funds, it considered the introduction of a stricter regulatory framework for master trusts – multi-employer schemes, often backed by a specific asset manager, resulting in management contracts not being openly tendered.

He told IPE: "They were very good at identifying the risks within master trust governance arrangements.

"The link between the founding company and the trustee board may never, realistically, be severed. The regulator seems fully aware of that risk and has introduced guidance to try and mitigate the risk in practice."

However, Berry said the regulator seemed to have not yet settled on "realistic" remedies or solutions should conflicts of interest persist – or how, in such cases, a master trust's governance arrangement should be changed.

"You could say this is because the regulator's power is limited – it might need statute to do something about it, which would be a DWP issue, not one for the regulator to deal with," he said.

He stressed that independence of trustee boards should not automatically be equated with a sound approach to governance and that there was space for a "variety of competences" on boards.

"But independence should be, looking across the trustee board as a whole, a key parameter they should be looking to attain – and the regulator should be upholding that standard," he said.

Berry cited the National Employment Savings Trust (NEST) as an example of best practice, while acknowledging it was a special case due to its government support.

"Governance is important in any pension scheme, but particularly in master trusts where there is a greater distance between actual workplaces," he said.

"In multi-employer schemes, member representation is not as strong, so it is important the internal governance be given even greater attention and emphasis by the regulator."

Berry suggested the current regulatory guidance and related consultation had yet to address this issue.

"You could perhaps say it exposes the limitations of the regulator's power, in the same way that the regulator's limitations are exposed in contract-based schemes, where they acknowledge there is less they can do."

He called on the DWP to show leadership around the topic of DC governance.

"Governance was the thing that was most absent from the 'reinvigoration' strategy," he said. "We have been left with the Pensions Regulator to deal with it, within this ambiguous context about what its real powers are."

Berry argued that while this could be achieved through statute, he was looking for the government to lead on the issue, thereby setting the "tone" of any new guidelines introduced by the regulator.

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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