By Mohamed Ali Bernat Paul Myners wants to add more professionalism to the role of pension trustees...
By Mohamed Ali Bernat
Paul Myners wants to add more professionalism to the role of pension trustees and have independent reports commissioned by scheme members to ensure transparency and efficiency of pension schemes.
Following his recommendation to scrap the minimum funding requirement (MFR) last week, Myners said there should be a long-term, scheme-specific approach based on transparency and disclosure, with no centrally dictated set of reference assets distorting investment decisions. This would replace the MFR's prescriptive investment measures which distort investment decision-making by its reference to fixed interest assets to calculate liabilities when most pension funds are equities-heavy, he said.
This would see trustees include investment objectives in their statement of investment principles (SIP) and receive payment for their duties while being required to ensure their decisions are taken with a sufficient level of knowledge either through increased training or using investment consultants.
UK institutional investors own more than £1,500bn of assets, which is over half the quoted equity markets. Myners said he wants pension fund trustees to be given more support in their decision making because he said they are being asked to take crucial decisions yet many lack resources and expertise.
A survey conducted for the review confirmed that many trustees are poorly prepared to make investment decisions, with 62% having no professional qualifications in finance or investment, the majority having received two days training or less, and almost half spending three hours or fewer preparing for pension investment matters.
Myners added that fund managers were often set unrealistic objectives with peer group benchmarks, which made funds more likely to copy each other. In addition, risk controls give active managers little choice but to cling closely to stock market indices.
He said: "I am struck by the lack of clarity about objectives at a number of levels. Fund managers are being set objectives which, taken together, appear to bear little coherent relationship to the ultimate objective of the pension fund, namely to meet its pension obligations."
Myners also criticised the vagueness of timescales over which fund managers' performance is to be judged, saying it creates unnecessary incentives for short termism. In his report, he said he would like to see a broadening of asset classes used by pension funds.
He added that investment in private equity should benefit from the framework set out by the principles and from the replacement of MFR, which also encourages short-termism.
Each defined benefit pension fund would be required each year to set out the state of the fund and future plans for paying pensions in a transparency statement.
Myners said he believed the process of having to prepare a statement of these matters would encourage trustees to think carefully about their investment strategy while making it publicly available would expose it to wider scrutiny.
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