McLean's Guide for Trustees & Companies
Do's and Don'ts for DB & DC Schemes

I was very pleased to be given the opportunity once again to speak at the OPDU Annual Risk Conference.

There are so many facets to the topic of “pension risk” and for the second year in succession the conference agenda was skilfully put together so as to allow all the different themes and issues to emerge seamlessly and with very little, if any, speaker overlap. Quite an achievement in all the circumstances.

For my session I was invited to set out some “Do’s and Don’ts” for employers and trustees in both DB and DC schemes as viewed from a member perspective. This is frankly the sort of remit that makes you feel it necessary to start with a blank piece of paper and then hopefully with the help of others brainstorm the subject until you have, after a series of edits and redrafts, something approaching a sensible list.

And that is more or less what I did. I spoke to as many scheme members as I could - in one instance utilising a local radio phone-in programme to ask listeners what they expected of the people running their pension scheme – as well as colleagues and others within the pension industry.

What came across very strongly in looking to compile my “Do’s” list was the concern that many consumers still have about the security of pension plans – how safe would their money be, what guarantees could they be given, and so on? Clearly the well publicised scandals that have hit pensions over recent years have had an impact and left lingering doubts in the minds of many about security.

There was also concern expressed about the complexity of the pension system as a whole and the seeming inability of many schemes to explain things simply and in a language that ordinary people can understand.

In relation to security and member protection this is clearly an area where whatever assurances can be given should be given - to members and would-be members as well. It came as something of a surprise to me how many people seemed to be  aware of the losses incurred by members of defunct pension schemes where the company had gone into liquidation but did not know of the existence of the Pension Protection Fund and the cover that now provides.

The role of the trustees in running the scheme, ensuring security and generally acting in the best interests of the members also does not appear to be fully appreciated although  there does seem  to be an expectation that someone will be carrying out that function.

Members of pension schemes probably need general assurances rather than detailed ones. As one scheme member put it to me very pointedly

"Look, I joined my company pension scheme to get a pension when I retire. No more and no less than that. I want my pension to be there for me when I need it. I don't want to be bothered with a lot of operational detail – just make sure my pension's safe and secure, that nobody's ripping us off and assuming we continue to pay our dues we get what we've been promised."

Communication is an on-going issue within the pensions industry and standards do appear to be variable. The language of pensions is often impenetrable to members and I know from my experience can itself lead to misunderstandings and disputes which really ought not to arise. Trustees have a responsibility to ensure the highest possible standards are maintained in this respect and in the delivery of customer service generally.

Not surprisingly therefore the need for good timely and accurate communication as well as security considerations and assurances all feature strongly on my “Do’s” list.

On the “Don’ts” front, amongst other things, I have taken the opportunity to remind trustees (and employers) of the need not to underestimate the role of administration in delivering that required good customer service and indeed avoidance of disputes with members generally. Similarly I have issued a cautionary note about not being too gung-ho in pursuing recovery of large overpayments of pension with potential PR consequences for the scheme. There have been several cases featured in the media recently where the image and reputation of the scheme has emerged rather tarnished from their handling of what is after all an issue which needs to be approached with some sensitivity. I have also suggested that trustees and employers should have nothing to fear from the various regulatory authorities and ombudsmen – assuming, of course, their actions (the schemes not the authorities) are honest and above board – and should work with them not against them in their own best interests.

The full lists of my Do’s and Don’ts are as shown. As I hope I made clear at the conference these can never be definitive lists as priorities will  vary from scheme to scheme and will in any event need to be reviewed to take account of the major changes in the pipeline – abolition of the default retirement age and auto-enrolment/NEST to mention just two. With many more people expected to be contributing to pensions in the future, however, I would expect there to be a greater consumer focus not less and that will inevitably influence all our actions going forward.

Ten Do’s

1. Ensure that the pension funds are safe and secure and kept separate from the employer's monies.
2. In the event of the company going bust and/or the scheme being wound up pension rights and entitlements will not be lost.
3. The employer as the plan sponsor will ensure that any DB scheme is appropriately funded at all times.
4. The employer will contribute to each individual DC pension as promised and on time.
5. The trustees will satisfy them selves periodically as to the strength of the employer's covenant.
6. An appropriate default option arrangement will be provided for those DC members who do not wish or feel competent enough to make an investment choice from the range of funds on offer.
7. The trustees will act in the best interests of the members at all times.
8. Communication with members will always be timely, accurate and clear.
9. Members will be informed of all proposed changes to their scheme and be invited to comment on them where appropriate.
10. A formal internal disputes procedure will be available to all members.

Ten Don'ts

1. Don't treat members as after thoughts – they are your ultimate customers.
2. Don't underestimate the work of administrators – they are a front line not a back office service.
3. Don't be obscure or opaque in explaining scheme rules, annual management charges etc.
4. Don't discourage members from asking questions about their pensions or the workings of the scheme generally.
5. Don't start off by denying a member's complaint without full and proper investigation of the facts.
6. Don't send out stupid, incomprehensible letters of explanation to scheme members.
7. Trustees – don't be complacent about the standards of customer service being delivered by the scheme. Seek independent feed- back where necessary.
8. Don't be unaware of the potential PR consequences of pursuing recovery of large overpayments.
9. Don't get confused about the roles of the different regulatory bodies and ombudsmen – and don't be afraid of them. They should be there to help not hinder.
10. Don't ever be afraid of number 10. The occupant will always be a bigger threat to the longevity of the Pensions Minister than to you or your members.

Malcolm McLean OBE
Consultant, Barnett Waddingham
malcolm.mclean@barnettwaddingham.co.uk
www.barnett-waddingham.co.uk

 

Malcolm McLean OBE

Consultant, Barnett Waddingham
malcolm.mclean@barnettwaddingham.co.uk
www.barnett-waddingham.co.uk