Pension scheme members are dependent on trustees to ensure that the fund is run properly and that they receive the benefits due to them on retirement. All the assets of the scheme are held in the name of the trustees, who are responsible for ensuring that they are invested and administered properly.
Their duties include administering the scheme in accordance with trust law, other laws and the terms of the trust deed and rules; acting in the best interests of beneficiaries and fairly between beneficiaries; acting prudently and diligently; exercising care and utmost good faith in all trustee duties; seeking professional advice as necessary; supervising those to whom functions have been delegated; not making personal profit from the trust; and avoiding possible conflicts of interest.
To that list, Colm Power of Davy Stockbrokers adds more: “The trustees are also responsible for ensuring that the contributions go into the scheme, that the scheme has an attractive and cost-effective range of investment options, monitoring communications with members, and making sure the benefits are actually there when they are due.”
Despite this, the work of trustees remains largely invisible to most scheme members. “A lot of this happens in the background,” says Power. “A lot of it is delegated out to people like investment managers.”
The question is, how do members know that the trustees are doing their jobs properly?
Standard variations
“It’s very difficult,” Power acknowledges. “There are hundreds of thousands of trustees in Ireland, and there is a variation in standards. “Many of them are doing a great job and others may not be. The big question to ask is whether they are being proactive or reactive, do they encourage member engagement and so on.”
The quality of communications and the ease of access to scheme information can give some indication of trustee performance.
“We are now in the digital age,” he says, “but the pensions industry has been a little bit slow on the uptake. Members should look for online access to their schemes and expect regular communications in relation to it.”
Another important issue is investment management. “Do the trustees run regularly competitions to choose investment managers to ensure they have the best available? Do they benchmark investment manager performance against others in the market?”
He also points to default lifestyle strategies as something to watch out for. The standard strategy has been to put the member’s assets into low- or no-risk cash and bonds as they approach retirement. This is most suited to members who are going to purchase an annuity. But with an increasing number of people investing their pension in an approved retirement fund (ARF), another approach is necessary.
“Trustees should really have two default lifestyle strategies in place to allow for this,” Power says,
Frank Downey of Invesco pensions consultants advises members to pay close attention to fund documentation.
“Trustees have to produce annual reports and benefits statements each year”, he says. “There is a lot of information available, and members need to be more engaged with it. The annual report is not sent out to members, but they are informed of when it is available. They should request it and read it. They should also go through their annual benefits statements very carefully to assess how the scheme is performing.”
That said, Downey notes that there is almost too much information available to members. This is about to change for the better.
“The Pensions Authority is engaged in a process of reform and simplification for the pensions system,” he says,. “and this should make it easier for members to assess whether the trustees are doing their jobs properly.”
