The issue of education in financial and investment matters as a fundamental need of pension fund trustees in Spain was confirmed in a recent survey carried out by Mercer.
The survey into corporate governance among second pillar pension schemes was the first of its kind in Spain.
One of its key findings was that only 20% of the trustees of second pillar pension schemes in Spain consider that they have a good level of financial knowledge.
“This is alarming,” says Rafel Martinez, managing director of Mercer’s office in Barcelona. “I expected the percentage to be closer to 80%. This means that training is urgently required for trustees.”
However we can gain some comfort from the fact that of those surveyed, which account for 60% of the total funds invested in second pillar schemes, 71% considered themselves to be in need of training. But one is left wondering about the remaining 29%.
The main knowledge gap is in investment expertise and the legal matters governing pension funds, with 95% and 84% respectively identifying these as training needs.
“In this survey the members of trustees have been in their positions for three years on average and the lack of knowledge is therefore surprising,” says Martinez.
However, this is due in part to the fact that half of the board of trustees consists of representatives from employees and trade unions who are unlikely to have training in the financial aspects of pension plans. The survey also notes that almost a third of the sample does not have an external adviser of any kind. Three quarters do not have a legal counsel and around the same number do not have an investment consultant.
Furthermore documentation which trustees have outlining how the fund is managed seems inadequate, to put it mildly. For example, only 20% of the corporate schemes had documentation which clearly defined responsibilities for trustees, fund managers and consultants concerning matters such as asset allocation and performance assessment.
Only 50% of those surveyed had written details of the investment methodology used and 45% had details about the level of risk that was acceptable.
The survey also found that only 25% of sponsoring companies have established a formal communication plan regarding the pension plan. Fortunately, 92% considered that communication with members of the scheme was of key importance.
“Pension schemes in Spain are not transparent,” says Martinez. “There is not very much communication between the company, trustees, members, employers about the management of the plan.”
Martinez notes that: “It is difficult for trustees to assess performance of the managers. As little as 5% of trustees have independent consultant to supervise the performance of the manager.
“Spain is a young market and efforts need to be made to improve corporate governance,” he concludes. “There needs to be clear rules defining the responsibilities of the parties concerned.”