Pensions Talks Interview: Donald Fleming, Professional Trustee, Pi Partnership

This month, we spoke to Donald Fleming, Professional Trustee at Pi Partnership who offered insight into the evolving landscape of pension schemes, including Defined Benefit (DB) surplus extraction, the potential impact of multi-employer Defined Contribution (DC) "megafunds," and the role of trustees in shaping Value for Money (VfM) standards. 

Trustees must navigate new powers and pressures while upholding long-term member security. How will the proposed reforms to DB surplus extraction reshape employer engagement with legacy schemes and what safeguards are needed to protect member benefits?

This question goes to the heart of what the proposed reforms could do. 

The dramatic shift in funding levels for many schemes since 2022 and the proposed reforms are starting to reshape the dialogue from one of attritional funding negotiations into one of value sharing and funding strategies, but the parameters need to be grounded in legislation and regulatory support. This is an opportunity for employers to re-engage more strategically with their scheme trustees. 

While the Pensions Bill should provide the necessary framework for release of surplus funds, the key safeguard must be that the final decision as to what is in members’ interests is a trustee one based on settled parameters.   

Clear fiduciary boundaries and conflict management will be essential as trustee discretion expands. What role should trustees play in balancing the interests of scheme members and sponsoring employers under the new surplus sharing framework?

Responsibility for any decision to release surplus rests with the trustees who have the critical role in balancing interests of members and employers. Where there is a sole trustee there will be a greater need to demonstrate to members clear fiduciary boundaries and appropriate conflict management. 

The trustee role is proactive - weighing up competing interests, working with the employer and drawing on advisers as needed. As well as the impact on scheme funding and member benefits, Trustees need to understand the employer perspective around allocation of capital and the impact on corporate value. 

Trustees must weigh efficiency gains against risks to member choice and representation. Could the creation of multi-employer DC “megafunds” accelerate consolidation and what impact might this have on member outcomes and scheme diversity?

It is very likely to accelerate consolidation by driving smaller schemes to merge or exit, or for new consolidator schemes to enter the market. 

Positive impact on member outcomes should come from economies of scale, enabling cost reductions and better access to some asset classes, such as private markets, as well as from more investment in technology and in-house management capabilities. 

There is a risk that scheme diversity and member engagement suffers, but a lot will depend on how megafunds use their resources – some may be able to offer better technology to drive member engagement.        

Trustees will play a key role in shaping VfM standards that reflect real-world member impact. What metrics do you think should underpin the Value for Money (VfM) framework and how will schemes be held accountable for delivering better retirement outcomes?

Transparency and clarity on performance, member choices and default funds drive accountability. 

Important metrics are investment performance, net of fees, measured over relevant periods with trend comparisons to relevant indices, and costs and charges metrics with clear explanations as to what is included. 

There should also be metrics relating to quality of administration and member service, and factors important to many members such as ESG integration - though developing appropriate metrics to capture the breadth of ESG factors is a developing subject in itself. 

Trustees have a unique opportunity to influence national policy and support vulnerable cohorts. How will the revival of the Pensions Commission influence long-term adequacy reforms and what immediate steps can schemes take to support under-saving groups (i.e. women, ethnic minorities, and the self-employed)?

Pensions industry bodies such as the PMI have carried out valuable work on pensions adequacy and I welcome the revival of the Pensions Commission which will have the ability to translate evidence-based research into long-term policy development outside the pressure of short-term party politics.

In practice, schemes can examine the demographic makeup of their membership in more detail and try to engage more proactively with members to understand how they might support under-saving groups. 

A recent survey of 12 master trusts from Pi Partnership sees a majority starting to develop decumulation option for members. How can trustees ensure that default decumulation solutions reflect member diversity rather than a one-size-fits-all approach?

The first thing is to get an understanding of the key characteristics of the membership, then define sensible cohorts, and then design default solutions around this. The report DC-Decumulation-Report-FV.pdf from my Pi colleagues Hans-Christophe Hirt and Laura Johns examined the emerging default solutions that providers are beginning to consider. The difficult question is how many designs the scheme can support and how much input from members will be required from time to time.