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Governance structure among UK pension funds' top concerns – survey

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Pensions funds in the UK are increasingly concerned about their governance structure and most of them have undertaken a process to improve it, a new survey has found.

According to the Russell Pensions Governance Index – launched in partnership with the Royal Mail Pension Plan, Telent and Saul pension schemes – 70% of large and 69% of mid-sized schemes said they were in the process of changing their governance structures.

In comparison, only 27% of small schemes said they were engaged in such a process.

However, the report stressed that smaller schemes had a higher proportion of trustees with professional qualifications on their committees than larger schemes.

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Therefore, 47% of trustees in small schemes have professional qualifications, compared with 16% for large schemes.

Additionally, smaller schemes seem to have a greater propensity to delegate externally, and larger schemes internally, consistent with available resources.

This, in turn, explains why large schemes spend on average 5.4 basis points on governance, while mid-sized schemes face a cost of 9.7bps and small schemes 13bps.

The index found that third-party adviser costs accounted for the largest proportion of governance spending, at 70% for larger schemes and 52% for smaller schemes, and the vast majority of these costs are for actuarial and investment advice.

Chris Hogg from the Royal Mail Pension Plan said the survey came from a desire to better understand the governance structures of others, as a context for decision making and formulating ideas.

Sorca Kelly-Scholte, managing director of client strategy and research at Russell Investments, added that it was common for governance arrangements to develop and grow over time.

“For the governance structure to be sound, it needs regular attention and review, just like any other arrangement a scheme puts in place,” he said.

“Good governance doesn’t guarantee better outcomes, but it can materially improve the chance that schemes will reach their objectives.”

 

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