PLSA Says TPR Should Change Its Approach

Trade association argues that regulator is too focused on process, and not enough on people.

UK trade association the Pensions and Lifetime Savings Association (PLSA) has published a white paper urging pension regulators to concentrate on the knowledge and experience of boards and committees rather than focusing on regulation.  

The PLSA argues that while there are a wide range of regulations setting out expectations of boards and committees, they are largely concerned with dictating specific procedures that plans must follow. Instead, it said, The Pensions Regulator (TPR)  should ensure that those running the boards and committees are appropriately qualified, and are able to act in the way most suitable to their particular plan.

According to the paper, running pension plans effectively requires expertise in technical areas such as financial, legal, and actuarial matters, as well as more general skills such as commercial acumen and communication skills.

“To achieve this, we need a bold but not implausible shift in the way we regulate governance,” said the PLSA in its paper, “from process to people, achievable within the existing legislative framework, and capable of bringing about a real and necessary improvement in standards.”

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The paper points to 22 pieces of regulatory guidance from TPR, which it says are confusing for pension governance bodies, and can lead to misdirection of energies towards compliance with procedural requirements, and away from the strategic decisions shaping the long-term success of their pension plan.

“This approach has been unsuccessful,” said the PLSA, “and while welcome steps have been taken towards clearer, simpler governance guidelines, further progress is needed.”

PLSA said that TPR’s own research has shown highly varied standards of governance, “with only half of surveyed schemes saying all their trustees meet standards set out in the Trustee Knowledge and Understanding (TKU) Code of Practice,” said the PLSA, “while 24% say they never disagree with external advisors and 58% say they ‘rarely’ do so, hinting at a lack of capacity to challenge expensive advice.”

According to the paper, key characteristics of effective boards or committees include:

  • Collective knowledge of the technical areas relevant to pension fund administration, such as investment, legal, and actuarial matters.
  • General skills, such as an ability to communicate effectively, and commercial acumen when dealing with external advisers.
  • Cognitive diversity, through board or committee members with a range of different backgrounds and perspectives.
  • Access to executive support for the day-to-day running of the pension, enabling the governance body to concentrate on key strategic decisions.

“When DC schemes fail to achieve good value for members because of poor investment returns, excessive costs, and charges or poor administration performance as a result of poor governance, savers also suffer,” said the paper. “Both of these scenarios lead to lower incomes and a lower quality of life in retirement than ought to have been the case. It is, therefore, vital that governance bodies are properly equipped to fulfill their responsibilities.”

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New Ceres Report Calls for Sustainability Practices Across All Corporate Boards

Builds on 2015 report, while highlighting key characteristics, practices.

Citing the impacts related to Hurricane Irma, a new report from Ceres suggests that corporate boards bring extreme weather events, climate change, and other sustainability issues to the forefront of their decision-making process in order to meet their fiduciary responsibilities.

The report, titled “Lead from the Top: Building Sustainability Competence on Corporate Boards,” addresses the legal responsibility among boards to act when environmental and social issues threaten business models and financial performance.

“Sustainability should be a primary matter for all board members, not just those with environmental or energy expertise and backgrounds,” Carol Browner, former EPA administrator and board member at Bunge, writes in the forward of the report. “Expanding board expertise on sustainability should be part of every company’s board strategy. Understanding the material risks and opportunities for the company is inherent in a director’s responsibility to ensuring long-term value creation and resilience.”

According to a news release, key characteristics that make up sustainability-competent boards identified in the report include:

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  • Integrates knowledge of material sustainability issues into the board nominating process to recruit directors that ask the right questions.
  • Educates directors on material sustainability issues to allow for thoughtful deliberation and strategic decision-making at the board level.
  • Engages with external stakeholders and experts on relevant sustainability issues.

In addition, key practices corporate directors should follow to ensure boards are sustainability-competent include:

  • Incorporate material sustainability issues into qualifications for potential board candidates.
  • Find directors that can make the connections between environmental and social issues and the business context.
  • Recruit candidates representing a diversity of backgrounds and skills to improve decision-making.
  • Integrate new directors with sustainability competence into current board deliberations, especially on strategy and risk.
  • Require regular education on material sustainability issues for the whole board.
  • Find regular opportunities for boards to engage stakeholders on environmental and social issues.
  • Incorporate material sustainability issues into board-investor dialogues.

The report builds on a 2015 Ceres report titled “View from the Top: How Corporate Boards Can Engage on Sustainability Performance,” centered around a two-pronged approach for integrating sustainability into decision-making through board governance systems and board actions. The report also comes at a time where shareholders and investors are pressuring corporate boards towards sustainability competence as well as ExxonMobil’s decision earlier this year to appoint a climate scientist to its board.

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