GLOBAL – The existing system of pension fund governance in the US and UK – with its roots in the nineteenth century – does not reflect the “financial imperatives” of the 21st century, says Oxford University professor Gordon Clark.
“Ultimately, pension fund governance reflects, more often than not, its nineteenth-century antecedents rather than the financial imperatives of the twenty-first century,” Clark said.
The remarks follow comments by Christine Farnish, the chief executive of the National Association of Pension Funds, who has hinted at a “new legal form” for the trustee system. And they come as the UK government has said it wants half of trustees to be nominated by members.
Clark - co-director of the Oxford Programme on Global Pension Reform – said that while it is important to observe codes of conduct like those advocated by the Organisation for Economic Cooperation and Development “there may be significant problems with any system of governance that relies upon rules and procedures”.
“At one level, discretion is an essential attribute of the trust institution - trustees act on behalf of others not so well placed to manage their own long-term welfare because of lack of knowledge and/or ability.
“At another level, pension funds are presumably regulated by a well-defined purpose - the welfare of beneficiaries.”
“Inertia rather than innovation may be the net result.”
Clark made the remarks in the abstract of an study entitled “Pension fund governance: expertise and organizational form”
He said the governance and regulation of pension funds “are issues of public concern with direct bearing on the interests of stakeholders and ultimately the performance of Anglo-American financial markets”.