Rather than the Law Commission recommending greater clarity through statute, pension trustees and asset managers in the UK should be offered greater guidance on the scope of fiduciary duties, the National Association of Pension Funds (NAPF) has said.
The association also said it accepted there was a governance “vacuum” in some contract-based pension arrangements that could harm member outcomes, but was unconvinced that proposed provider-level trustee boards were best way to solve the problem.
Will Pomroy, corporate governance policy lead at the NAPF, said pension trustees already had a “good grasp” of fiduciary duties, and knew it was their responsibility to act in the best interest of their member.
“The law as it is currently understood allows trustees to use their judgement and discretion appropriately,” he added. “This flexibility extends to the consideration of environmental, social and governance (ESG) factors and to the fulfilment of their stewardship responsibilities as set out within the UK Stewardship Code.”
In its response to the Law Commission’s consultation on fiduciary duties, the association said it was unconvinced of the need for a statutory underpinning for fiduciary duties.
“Instead, the Law Commission may wish to consider producing an open letter that could be sent to trustees and investment intermediaries summarising the key conclusions,” it said.
“This exercise would benefit trustees by making it clearer they can consider wider factors such as ESG issues when making investment decisions, and that fulfilment of stewardship responsibilities is compatible – indeed, aligned – with a trustee’s fiduciary duty.”
The Law Commission’s review of legal duties, announced last year, started a debate about the need to codify fiduciary duties, one that has led to warnings that any attempt to draw up primary legislation could not be a “magic solution”.
The association’s response also touched on governance in defined contribution (DC) funds, arguing that contract-based schemes – run by the for-profit insurance industry – could still offer good member outcomes if they were well governed.
It said that, to ensure good governance in such arrangements, employers should be obliged to “put in place a governance arrangement to support the interests of pension savers”.
It also seemed uncertain if proposed provider-level governance boards would be effective in addressing the governance “vacuum”.
“If Independent Governance Committees are formed,” the consultation said, “they should be constituted primarily to act on behalf of employers, who, as the purchasers, are the actors that should have responsibility for bringing in pension arrangements that offer value for money and also have the most influence over the provider (regardless of the fact that the employee holds the individual contract).”
The Law Commission previously warned that legal duties were insufficient to protect the interest of DC members and said they needed to be enforced by an efficient regulatory system.
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