Updating the Myners Principles

Updating the Myners Principles

TUC response to HMT, DWP & TPR consultation

1.1Introduction

1.1 The TUC is pleased to have the opportunity to respond to this consultation on updating the Myners principles.

1.2 As Britain's national trade union centre, the TUC represents 6.5 million working people through its 58 affiliated unions. As well as working to raise the quality of working life, one of our main objectives is to promote social justice. This includes a direct interest in pensions policy and in the investment and governance of pensions.

1.3 Many trade union members are involved with their pension scheme as member nominated trustees. Trade unions play an invaluable role in promoting trusteeship, encouraging members to come forward to become trustees, and supporting them in their role, for instance through providing tailored training and guidance.

1.4 The TUC supports a network of 1,000 trade union trustees. We provide newsletters, events, briefings and training for members of the network and act as a point of contact and advice for union trustees.

1.5 The TUC strongly supports the government's commitment to move to require trustee boards to be made up of 50% member nominated trustees. We see this as integral to the good governance of pensions. Member trustees bring an invaluable employee perspective, a range of experience and are essential to ensuring that schemes are run in the interests of the membership.

Key issues

Investment Governance Group

1.6 The TUC supports the proposal to create an Investment Governance Group in order to oversee the development of best practice and guidance in investment governance and the application of the Myners principles. We agree that the Pensions Regulator is an appropriate Chair for the body and welcome the proposal to bring DWP and HM Treasury together under the auspices of the group.

1.7 The consultation states that DWP, Treasury and the Regulator will decide the membership of the group 'in consultation with the industry'. This consultation must also include full consultation with the bodies that represent pension scheme members, including trade unions.

1.8 We support the proposal that the group should include practising trustees, and would encourage the government to ensure that there is a sufficient mix of practising trustees, including member nominated trustees, representatives of members and trustees from a range of types and sizes of scheme.

1.9 Whilst input from industry experts and advisors will be important, it is essential that this does not undermine decision making by practising trustees, representatives of pension scheme members and government representatives on the group.

1.10 It is equally important that the Investment Governance Group takes decisions following extensive consultation with stakeholders outside the group, in order to ensure that decision making is well-informed and linked to the wishes, knowledge and experience of stakeholders, particularly pension scheme members.

1.11 The draft terms of reference for the group present a useful starting point for the development of the constitution for the body. The TUC would like to see a more explicit acknowledgement of the role of the IGG in promoting active and engaged ownership in line with the spirit of the original Myners principles. The group's mandate should include the promotion of good governance practice in encouraging shareholders to use their rights and duties as investors to engage with investee companies. In addition it could usefully consider developing support tools to help trustees evaluate investment products, and link to broader work about improving levels of financial education.

Remuneration of trustees

1.12 The consultation proposes that it should be considered best practice to pay trustees. There are a number of concerns about the remuneration of trustees, such as the possibility that it could distort motivations and place additional cost pressures on pension schemes. At the same time we recognise that there are arguments for remunerating trustees for what can be a time consuming and challenging role.

1.13 We believe that the key issue is that trustees should have sufficient, paid time off for trustee duties, including preparation time for meetings and training as well as trustee meetings. The legal right to time off for trustee duties is in the Employments Rights Act 1996 (section 58), and these rights should be strongly emphasised in the principles and protected as with the right to time off for trade union duties for elected union representatives.

1.14 The decision to remunerate trustees is a matter for trustee boards themselves and is usually set out in the trust deed and rules. Where a trustee board does decide to pay trustees, there should be a formal and transparent policy on payment. The principles should uphold this approach, recognising that there is no 'one size fits all' model, and that for schemes of different types and sizes paying trustees may or may not be appropriate.

1.15 This is clearly an issue that could benefit from further more detailed debate and consideration, and could usefully be one of the first issues for consideration and consultation by the Investment Governance Group.

Updated principles and best practice guidance

1.16 Overall, the TUC supports the maintenance of the 'comply or explain' approach set out by the original Myners principles and the goal of clarifying the principles as set out by the NAPF in their review.

1.17 Principle 1 (para 4.2): The principles as set out in the consultation demonstrate the importance of the Trustee Knowledge and Understanding regime, good training, guidance and support for all trustees in their role.

1.18 Principle 1 (para 4.3): Whilst an investment sub-committee may be appropriate in larger schemes, this is unlikely to be a suitable approach for smaller schemes. In addition, where investment sub-committees are used, it is important to maintain the principle of proper member representation, constituting at least one-third of members of the group.

1.19 Principle 2 (para 4.5): The emphasis on clear written mandates and the reference to members' expectations are welcome. In addition, the TUC would like to see the principles promote consideration of the methods trustees can use to encourage engagement and voting by fund managers.

1.20 Principle 4 (para 4.8): In analysing the performance of investments, trustees should also be encouraged to assess the performance of fund managers and advisors in terms of their engagement activity and active ownership on behalf of the fund. In addition, consideration should be given to the development of support and guidance for trustee self assessment in order to ensure that the process is fair.

1.21 Principle 5 (para 4.11): We are pleased to see the additional reference to the importance of considering engagement in developing investment strategies, and would like to see the Investment Governance Group conduct further work to develop and promote good practice in engaged investment.

1.22 Principle 6 (para 4.12): Communications with 'stakeholders' should include proper communication with scheme members and their representative bodies, including trade unions.

Disclosure and reporting

1.23 The TUC supports the strengthening of the 'comply or explain' approach, with the emphasis on disclosure to members and candid, comprehensive reporting. It is not entirely clear from the consultation, however, how this strengthened approach will work in practice. We would welcome clarification of the proposals in this area, including an acknowledgement of some of the barriers to the effective implementation of a 'comply or explain' approach and consideration of how to overcome them.

1.24 Guidance on the form of reporting would be useful, particularly for smaller schemes, and could usefully be developed by the Investment Governance Group. In addition we believe that it would be useful to develop a central online repository for reports in order to improve transparency and information sharing about scheme activity.

Responses to consultation questions

Q1: Will the proposed approach (comprising an updated set of principles, best practice guidance, trustee tools, better quality reporting and greater industry ownership of the principles) improve standards of investment decision-making and governance?

Taking a consolidated approach to investment governance and the Myners principles is a positive initiative and we are pleased that the government is proposing a cross-departmental approach including the Regulator and the various interest groups involved.

The TUC believes that the proposed approach has the potential to improve standards of investment decision-making and governance, provided that the concerns outlined elsewhere in this response are addressed.

It is essential that the interests of pension scheme members are represented and that the focus is on developing best practice in investment governance in accordance with the interests of beneficiaries. The emphasis in the consultation on 'industry ownership' of the principles should be recalibrated to include a focus on members as the ultimate owners of pension scheme assets.

In order to avoid a 'tick box' approach, ongoing dialogue and guidance will be essential to support trustees and pension schemes to apply the principles in the most appropriate way.

Q2: Do you agree with:

• The proposed updated principles (as set out in full in Annex C)?
• The proposed best practice supporting guidance (as set out in full in Annex C)?

See response above (para 1.16-1.22)

Q3: Would pension fund trustees benefit from guidance on the content of reporting against the updated principles?

See response above (para 1.23-1.24)

Q4: Should the proposed Investment Governance Group consider the need for guidance on the location of reporting by trustees on their application of the principles?

See response above (para 1.23-1.24)

Q5: Should the proposed Investment Governance Group own the updated principles (on the basis set out in Annex B)? If yes, are the proposed Terms of Reference for the Investment Governance Group (in Annex B) the right ones?

It is appropriate that the Investment Governance Group, with membership from across government and including trustees, member trustees and their representatives, owns the updated principles and has responsibility for leading on their future development and associated guidance. Input from industry experts and advisors will also have an important role to play but it should be recognised that this is on a different basis and should not override the decision making by government, trustees and their representatives.

Q6: Should the DC principles be updated by the Investment Governance Group to reflect the changes to DB principles and those market changes affecting DC provision?

One of the worrying aspects of the shift from DB to DC pension schemes is the undermining of the trust system and the routes for members to have an influence, especially given that in DC schemes the risk is borne by the members.

The TUC therefore supports a trust-based approach to DC wherever possible in order to maintain member input into the governance of the scheme. The DC principles should be updated and monitored by the Investment Governance Group in order to promote and develop better governance and more engaged investment in DC schemes.

Q7: Should the Investment Governance Group take forward work to help small schemes in their application of the updated principles?

Yes, tailored guidance and support for smaller schemes could help to address some of the difficulties faced by smaller schemes, which were identified by the NAPF in their review of the principles.

Q8: Should the proposed updated principles be adopted for LGPS use and LGPS stakeholders be involved in the Investment Governance Group process?

The updated principles should be adopted for LGPS use, with consultation with representatives of LGPS members and consideration of the governance of the LGPS.