3 hot pension governance issues for employers to be aware of
When is a door not a door? When it's ajar! This classic joke is a gem of our language. Written, it’s self-explanatory; ajar meaning slightly open. Spoken, you can't help thinking it makes no sense at first. Back in the day, as a school pupil, I thought the play on words was awesome - yes, I know, I should have got out more…
Now in later life, here are three of my favourites ‘doors’:
- The Doors – a groundbreaking band, singing lyrics like ‘Come on baby light my fire’, and that keyboard sound must surely have spawned the great work delivered by Dave Greenfield of The Stranglers?
- Star Trek’s sliding doors (circa 1960s) – they were supposed to be hi-tech electrics, but were clearly operated manually by a ‘best boy’ or ‘gaffer’, who was probably also making the ‘schwoop’ noise each time as well.
- Hodor - Game of Thrones fans like me were baffled by the slightly odd behaviour of simple-minded Hodor - for many episodes uttering nothing more than the words ‘Hodor, Hodor’. Then in one fabulous but hugely sad scene, he saves the life of his beloved master, Bran Stark, by holding the door firm against a marauding army of white walkers. Easily my best ‘reveal’ on television for years.
So, what has all this ‘door not being a door’ banter got to do with pensions and governance in the workplace? Here’s three key governance issues for your next meeting:
1) When is a default fund not a default fund?
When it doesn't offer the full range of pension freedom options in the final years. I know many providers are pretty much there with newer offerings now, but I only ever seem to encounter older versions of default funds, where the outcome for the pension member is still an annuity. Come on providers - tidy up your legacy clients asap! This is a ‘must have’, in terms of employer topics of discussion in your pension governance meetings.
2) When is an advisory firm not an advisory firm?
When it becomes a provider. For two decades, some advisers milked commission from providers, only to poach all the assets back under their own control once commission was no longer available. Poor show in my opinion. How can you objectively advise an employer about any pension scheme issue, if you are also their provider? Employers beware - the answer may be ‘our solution is best’, before you’ve even asked the question. Topic for discussion: is there an independent party involved anywhere in our pension arrangements?
3) When is an Annual Management Charge (AMC) not an AMC?
When it has other expenses loaded into it to create a higher Total Expense Ratio (TER). Some TERs still have high starting points (1% in most cases), with discounts applied monthly, to arrive at a final lower position. Engaging with 1000s of employees, as I have in the last decade, I can reliably state that employees are totally exasperated by this nonsense.
And don't even get me started on full TER transparency - the review of which is coming soon, and should offer more clarity on what the actual layers of fund management costs are. Employers, make sure this discussion thread is included in your governance process. You may not always be able to simplify your pension’s charging structure with your provider (that’s a big old juggernaut to turn around), but you can give your employees total transparency about how much it costs to invest their pension payments.
Ok - so when is a door not a door? When it is a jar - of chilli jam preferably. Life is always better with a hot sweet taste to accompany it!
James Biggs is head of financial wellbeing at Lorica.
This article was provided by Lorica.
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