UK – The government says it will legislate to require the “appropriate expertise” from pension fund trustees.

“We remain clear that it is right to legislate to require appropriate expertise from trustees taking investment decisions,” said treasury minister Ruth Kelly.

“It seems to me hard to argue against this proposition,” she told a National Association of Pension Funds conference in Edinburgh. “Those looking after large sums of other people's retirement savings clearly need to have an adequate understanding of the issues. Even with the benefit of the excellent advice trustees receive from many in this room, they still need to be questioning and intelligent customers for that advice.”

She said that the interests of shareholders needed to be promoted “in relation to the interests of management”. And a set of external stakeholders was needed whose actions will promote and reinforce good governance.

“Third, as an over-arching pressure, we need capital markets which can act as a discipline to poorly performing management.”

She said the debate about the recent Higgs report into non-executive directors “is starting to generate more heat than light”. She said the government wants to avoid the corporate governance framework becoming a matter for regulation, as in the US with the new Sarbanes-Oxley act.

She added that the Higgs debate has shown signs of a “disturbing complacency” about the UK corporate governance framework.

“I do not believe any complacency is justified. We may not have seen an Enron in the UK. But we have not been immune from numerous home-grown cases of large-scale corporate value destruction, either.”

“The challenges raised by Myners on transaction costs remain,” she added, referring to the Myners Review. “The objectives must be to promote proper transparency of the trading costs for pension funds and to deal effectively with any unnecessary costs – maximizing the amount that goes into the pensions pot - and to promote the overall efficiency of the capital markets.”

She said the government wants to give funds the opportunity to show that the voluntary implementation of the Myners code can work – “we want to give you the chance to demonstrate that you can deliver”.

“But that does not mean we are any less serious about improving the quality of investment decision making.”

Patrick Disney, head of UK institutional business development at asset manager SEI, said in response to Kelly’s remarks: “Two years on from the Myners Review it is heartening to hear that the government is serious about change. Undoubtedly, the Government’s review will reveal pluses and minuses in the implementation of the review.”

“But why is the government focusing on implementation of Myners when the most important question is how the incentive for long term savings can be improved both individually and corporately?”

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