Pension investment manager choice - can unions have a role to play?
The following is taken from Industrial Relations news analysis in September 2015 by Coleman Higgins.
The difficulties that have arisen over the choice of investment advisors/funds in the new pension schemes at Aer Lingus and Daa arise from a novel attempt to involve trade unions in the pension investment management selection process.
Trade unions have always been involved in negotiating pension contribution rates and benefits and, with the defined benefit (DB) pension crisis of recent years, also reductions in benefits and transfer terms to new defined contribution (DC) schemes.
However, once employees' and employers' money has gone into the pension scheme, decisions on how it is invested have traditionally been left to the trustees and the pensions industry, who try to get the best return for the scheme's members.
Several years ago, SIPTU's aviation pensions committtee, dissatistfied with the investment performance of the old IASS scheme shared between Aer Lingus and Daa, began to develop a Perfect Pension Partners Programme (PPPP), to select ideal invetsment managers for new planned DC schemes in both companies.
This consisted of meetings with a wide variety of pension providers, looking at their long-term performance, from which two investment managers were selected - Standard Life and Merrion Investment Managers.
Two "Pension Partners"
Since the trustee boards of both schemes were established earlier this year, SIPTU nominees on the boards have been argusing that these "pension partners" be considered for the shortlist.
The chairpersons of both boards have taken the traditional approach of selecting an investment advisor first, who looks at the needs of the individual scheme and comes up with a shortlist of potential investment managers. The ultimate decision as to which manager to use is for the trustees, with the assistance of the investment advisors.
SIPTU's pensions committee is understood not to be against the use of investment advisors to select an investment fund in this way, but is seeking more transparency for trustees in terms of how the scorinng system for selecting shortlists operates. Also, while tradionally the investment advisor was always totally separate to the investment fund, in recent years some firms have been offering both services. This has given rise to some concerns on the union side, which may or may not be justified.
Professional Advise
There is an obligation on trustees, if they are not themselves professional pension advisors, to obtain professional advice in the execution of their duties.
The Element Six pension judgement in 2014, although it involved a different type of trustee decision than choosing an investment advisor, made it clear that taking professional advice helped to protect trustees from legal action by scheme members that may later by unhappy with the result of their decisions.
SIPTU's pensions committee has participated in many training events and seminars, building up a signifcant expertise. While this may still not be seen as equivalent to the training received by those working in the pensions industry, it has meant a significantly greater engagement in pension issues, not just by the trustees, but also by other members of the union in terms of their awareness of how well their fund is doing.
The Pensions Authority, in a recent consultation paper on DC pension schemes, has called for significantly more education of trustees - a sentiment that the union side in the current row would agree with.
Duty to All
What may require more clarification is what level of involvement the union can have in relation to its nominated trustees. Even though the trustees are nominated by the union side, they have a legal duty as directors of the trustee company running the scheme to have regard to the interests of all members - which includes not just active members, by also deferred and retired members.
Few would have difficulty with a union providing advice and training to its members who are trustees. But the trustees still have to operate independently. The questionn here is whether arguing to include on a shortlist investment funds that performed well in a union research project could be seen as somehow compromising that independence. If those funds are indeed high performers, then all members benefit anyway.
