Legal & General has hailed a ‘new era’ in contract-based occupational pensions as it announced plans to implement independent oversight of its schemes.
Speaking at a press briefing today, Paul Trickett, chairman of L&G Trustees, announced that the company will broaden its independent oversight on pensions to include contract-based schemes.
Under current legislation, trustees of trust-based schemes have duties to members and powers of discretion under law. However, under contract-based arrangements, providers have general suitability duties but employers have none.
“There is a potential for governance standards to be very different across the two models,” Mr Trickett said.
He raised the issue that, with auto-enrolment starting to bed in, employers might be tempted to simply set up a pension scheme and let it run without checking its ongoing suitability.
“There will be a lot more people coming through auto-enrolment with a desire to get it to happen but with no great desire to be actively engaged with it,” he said.
The appointment of an independent individual to oversee contract-based schemes will “bridge the gap” on contract-based schemes, “mimicking” the structure seen on trust-based schemes.
L&G’s investment governance oversight committee will be responsible for governance of schemes and maintaining appropriate investment options from joining to retirement, particularly focusing on default options.
It will work to resolve potential conflicts of interest, such as investment suitability versus commercial viability. Doing nothing often costs the least, Mr Trickett said, which may not be in the best interests of the member.
There will be no additional costs to scheme members to cover the implementation, according to L&G.
Tony Filbin, managing director of workplace savings at L&G, said the company has had no specific indications from the regulator that greater corporate governance would be legislated for, despite an industry acknowledgment that a governance gap exists between trust-based and contract pensions.
