Australia may well be ahead of the game when it comes to pensions governance, say Benjie Fraser.
Better governance remains top of the agenda for most pension sponsors. In a recent pensions survey conducted by Towers Watson, a sizeable number of respondents voiced the need to focus more energy in the area of governance, particularly in light of evolving regulatory demands. In addition, the survey results identified two of the greatest perceivable risks facing pensions in the next couple of years – regulatory compliance and investment volatility.
Board structures, managing conflicts of interest and training are key areas of focus for all levels of the industry including trustees, sponsors, supervisors and the legal profession. But nowhere is the new pensions landscape more observable than at the trustee level, where the minefield of regulations and legal cases makes retaining a good talent pool an increasingly challenging business. Recent studies confirm the direct influence of competency at the trustee level as a measurable factor toward improving overall fund performance, making governance all the more critical.
With new regulations have come requirements for less but better trained trustees, the ability to develop a core of independent chairs of trustees with strong outside business acumen and, last but not least, better purchasing power for the fund in terms of underlying costs. Above all, a huge focus for regulators is to improve trustee knowledge and awareness. Accreditations, self-assessments and formal training programmes within the annual trustee cycle are all becoming the norm. Education is the watch word. Are there different standards of governance protocol being applied globally?
Across the major markets, debates are being conducted on the resource impact of new regulations, plan consolidation and improving professional standards. In all of this, no one has lost sight of the point of pensions: providing an adequate income in retirement. But what perhaps could be called extraordinary is how trustee groups around the world are beginning to share their experiences in order to establish new levels of best practice.
Might we then see a proliferation of international standards for pension trustees? At first voluntary? Perhaps. Perhaps we have already witnessed these first moves with the creation in 2006 of the United Nations-backed Principles for Responsible Investment Initiative (PRI), a network that has attracted the signatures of some of the biggest pension funds in the world. Certainly, in the area of PRI, we can expect a new impetus as more and more asset owners take an active interest in responsible capitalism. Global inter-connectivity? PRI links neatly with the publication of the Stewardship Code by the UK industry body, the National Association of Pension Funds, which seeks to promote the long-term success of the companies in which the their membership invests.
Australia sits incongruously (in geographical terms) at the hub of a lot of this global change – an inevitable consequence of the industry reaching critical mass. Around the world, pension systems are all struggling with various degrees of success with participation, security and adequacy. Australia has now added a fourth dimension off the back of the Cooper Review, and it's called transparency.
But then, greater transparency brings its own challenges, of course.
Benjie Fraser is global pensions executive at JP Morgan's Worldwide Securities Services business