We asked leading industry figures: what can pension fund boards do better? How much time should boards spend on pension fund matters outside meetings and how much should they be paid?
Jaap van Dam, partner, HSP Consult, Switzerland
Based on my experience with two dozen pension funds I am convinced that investment committees rely too much on consultants (or, in the worse case, bankers) for their asset management. For most pension funds the best option would be to invest in shares of Swiss institutional investment funds. Most of these are economical, transparent and very successful.
Most of the trustees should be professionally experienced in at least a part of the pension fund environment, otherwise you need too much time to stay up to date. It does not bring much if you go on a course only once in a year.
Expenses and attendance fees should be paid in case that the employer does not cover that. The level should depend on the size of the fund and the level of responsibility of the board member. In total some thousands of Swiss francs a year would be acceptable.
Penny Green, independent trustee, UK
I think that trustee boards need to recognise where they are lacking in skills or knowledge and seek to supplement those in their appointment process. I also think that trustee boards need to be more willing to challenge their advisers, asking why the advice is right for the scheme and what other alternatives are available.
It is difficult to say in terms of days and hours, but trustees should take an active interest in understanding their role and responsibilities and keep their knowledge of pensions up to date and that requires greater involvement than just reading meeting papers and attending meetings. Certainly, subscribing to and reading the trade press has to be part of what trustees do outside the meeting cycle.
I am neutral on remuneration. It does depend on the scheme. Paying lay trustees does not automatically improve the quality of trustees.
Bart Heenk, partner, Avida International, UK/Netherlands
Most boards waste time on operational issues, such as manager selection and monitoring. This adds little value to members and sponsors. They should concentrate on risk management and investment strategy, including alignment of interests with providers, costs of investment management and reducing decision-making time.
They should spend at least as much time again as they spend on meetings, by sharing knowledge and learning from other boards, preparing for the meetings, and communicating with stakeholders. A good chair will spend about a day a week on the pension fund, and more when strategic decisions need to be taken.
While it is possible to find good trustees who are willing to share their expertise for little or no financial reward, most people can’t afford not to be paid for their time. It’s worth contemplating aligning interests by not paying for time spent per se, but for accomplishments.
Anton van Nunen, independent consultant, The Netherlands
Dutch pension fund boards should take more responsibility towards their objectives. My experience is that they follow strict rulings by regulators with a large margin, so that, when market developments are disappointing, they still have a funding ratio that is higher than prescribed. In acting this way they subordinate the well-being of members to hedging regulatory risk
Regarding how much time boards should spend outside meetings, of course, the answer depends on the size and complexity of the
investment portfolio and of the provisions made for the members. That being said, I find it hard to imagine that a fund of €500m can be run without full-time dedication of at least one board member, supplemented by an investment committee which can be called upon any time.
In my opinion, remuneration should be aligned with that of a person with the same responsibilities and time consumption in comparable companies.
Paul Trickett, chairman, Railpen Investments, UK
Not enough pension funds have established their investment beliefs but finding the time and effort to work through and set out investment beliefs is well worth spending. This needs to be done over a long period of time with reflection and reiteration. Pension funds would then be faced with the opportunity to assess whether what they do is truly reflective of their beliefs and, where it is not, whether they would change things.
I spend about 35-40 days a year on Railpen Investments. The Dutch approach to regulation is incredibly heavy-handed. If the trustee body thinks it has very little to add, why would it spend a lot of time on that process? It would put arrangements in place to outsource it and spend time on monitoring it.
If you want pensions to be professionally managed you have to pay for it but a non-executive role in a pension scheme is not like being on a FTSE 100 board. When I was at British Coal 20 years ago now we put in place arrangements to pay trustees because it was sensible to pay them if you were asking them to do a professional job. There’s no point in complaining about pension schemes being badly run if you encourage them to be badly run.