12 September 2013

Improved Governance for Contract Based Pension Schemes

Paul McBride

Paul McBride, Director of Legal & General Trustees Limited, explains more about the work we've carried out to improve governance of our contract based schemes.

"No-one will deny the importance of good governance in delivering better member outcomes, which is why we have instituted a change in our governance approach to our contract based pension schemes.

Following our entry into the Mastertrust world in 2011, for the first time we introduced true independence into the governance mix. We observed that the Trustees were more challenging of perceived wisdom, investment proposals and distributor value add than us in our more traditional role as contract scheme provider. Member outcome really was the central focus of their decision making, with our commercial and relationship considerations very much secondary.

Having gained from this experience, and having recognised the incongruity of operating a two-tier approach to governance, we launched our Investment Governance Oversight (IGO) Committee in May this year.

IGO is the contract equivalent of our trusteeship. It is made up of the same personnel who act as Trustees, including the independent element - which we have recently restructured in order to ensure a better independent balance of decision making powers. Our Mastertrust recently became the first of the 'insurer' Mastertrusts to achieve PQM Ready - an accreditation which recognises the quality of the governance structure and process. We are proud to carry these standards into the contract space.

IGO's remit is simple - to deliver better member outcomes. We work on the premise that where the member pays, there must be a tangible benefit for them. We anticipate (and have encountered) no conflicts with advisers who share this view.

There is now a ground swell towards compulsory independent governance for all contract providers, something we are fully supportive of. But there is a note of caution. Until we collectively address the legislative arbitrage that renders contract governance less effective at a practical level than trustee governance (due to the limited opportunities to bring about change without member consent), we may never truly bridge the governance gap. We are very encouraged by the positive way in which the various government and regulatory bodies are starting to tackle this issue, and will continue to support them however we can."

Paul McBride, Director, Legal & General Trustees Limited