This month’s Off The Record looks at the subject of pension fund reporting to members and other concerned parties – undoubtedly one of the less glamorous parts of a pension fund’s role, but nonetheless of vital importance to employees.
Importantly, the issue of transparency and information was also a key focus of the European Commission’s recent proposals for a directive on occupational pensions, and is therefore something that impacts upon us all.
So just how much information do you as pension funds put together for external scrutiny? How is it delivered, and, perhaps more importantly, how is it received?
The first thing to note is that of this month’s respondents, all produced some form of annual statement/report on the fund’s activities – so far so good!
All purport to include the financial accounts for the fund, while over 90% include information on benefits or investment developments, 85% an actuarial report.
Additional areas covered include ALM studies, names of trustees, strategic asset mixes with a couple noting that they include articles on special investment topics such as sustainability.
One fund points out that what it presents is needed under UK legislation. “As required by the Pensions Act of 1990 and SERPS, we provide a full report and accounts sent to unions and available to the members.”
Just under half of you provide a summary of this report for the time-handicapped or less financially initiated.
Of those parties in line to receive the full report, 77% of funds send it to the local regulators, while 85% ensure that both the trustees and management boards as well as the plan sponsor are furnished with comprehensive copies – let’s assume that those funds that left this question blank had suffered a slight memory loss.
Fewer presented trade unions with the entire document (62%), while, interestingly, only 38% gave the report to members.
In terms of distribution of the fund summary, a fifth of funds present this to the regulator and two thirds give the condensed version to their trustees.
Only around half though send the summary specifically to scheme members or pensioners – a figure that appears relatively low bearing in mind whose money it is!
Other parties that you say also receive the reports/summaries include investment managers, agents, actuaries and auditors and, of course, journalists – summaries preferred please!
One fund says it has a list of VIPs that are sent the report, which includes politicians, other pension fund executives and the press.
Two-thirds of you point out, however, that the documents are available on request for members of the public, so any scheme members reading this might want to get on the phone to see just exactly how their future retirement income stands!
So what exactly do recipients of the report get to peruse?
Sixty-two per cent of you send out a fully printed and bound manuscript as their full report, with only a handful of schemes presenting their figures in a loose bound or stapled version – let’s make it look good eh!
For the summary the majority of you put out a booklet version of the original.
Dates vary as to when this has to be produced, although most schemes appear to have a June/July deadline for release.
Significantly, the variation between how much information is provided is marked.
The smallest full report amounts to a relatively brief eight pages and the largest runs to a hefty 76 pages – ample bedtime reading for any trustee.
Summarised presentations tend to come in under the 20-page mark with the smallest a chart size single page of A3 paper.
On average it takes funds three months to put together using six staff, although the number ranges from a single person to a team of 30.
And the majority of you say that the work is done in-house except for some of the actuarial work and the design and printing. So no mean feat to put together then….
The largest responding fund says it prints 2,500 copies of the full report and a whopping 100,000 copies of the summary – a mini publishing empire – while at the opposite end of the spectrum the smallest scheme produces just 100 full reports.
Cost varies just as much, with the per copy figure for full report production varying between e5 and e50 and the maximum paid per summary sitting at e20.
So does the end justify the means? How useful do those receiving the report find it and what kind of feedback are you getting?
For the large part, very little, it would seem. Many of you say that responses to the reports are negligible, even non-existent.
But, as one scheme manager points out, no feedback surely means that everyone is happy with the reporting… doesn’t it?
“We get many letters asking for clarification of points in the report,” says one fund.
Another adds: “The reaction we get from other pension funds is very positive and we get asked all sorts of questions.”
Most of you tend to think that scheme members can understand the reports fairly easily, although a couple comment on the need for a reasonable investment education level. One scheme chief, however, seems less that certain, commenting: “I hope so… We say we are always ready to answer any question!”
That is not to say that you are complacent, with a high proportion of managers saying that there is still work to be done, as one comments: “We need less specialist speech – remember that the most important stakeholder is the scheme participant.” Sound advice, certainly.
Then again, the responsibility does not just lie with pension funds to ensure that members are clued up – how about the members themselves?
One fund suggests that being a defined benefit (DB) plan has made its members a little apathetic: “Our scheme members do not understand the reports sufficiently, despite great efforts. It is a defined benefit scheme so this is part apathy because they believe it is well managed by the trustee board. Members are mainly interested in the total value of the assets and whether they can see an opportunity to negotiate with the employer for improved benefits.”
Fortunately, technology is beginning to play its part in bringing members closer to the fund, with 65% of respondents saying they now had a website with dedicated sections for pensions and the presentation of the annual figures.
One manager, notes: “A web- based solution for communicating pension information to the members would probably be the best solution.”
Another recognises that the trend towards defined contribution (DC) pension arrangements will demand such progress: “The move to DC will require an increased amount of general information, including performance statistics of funds etc.”
Realism may just halt the IT revolution for a time though, as one scheme indicates: “This will come in the near future, but in the start it will have a limited impact due to the modest number of private internet connections so far.”
Nevertheless, there is work to be done to ensure that pension funds are as transparent and open as possible, as some of you rightly point out: “Let’s take the emotion out of the debate, present facts and figures honestly and keep in touch with the active and retiree population of the company,” concludes one pension fund manager.
Noble sentiments indeed, and a clear and concise note to end on!