ASSET ALLOCATOR SPOTLIGHT

By Mark Austin | February 2024
Chair Trustee of the Northern Trust (UK) Pension Plan
Pensions and Insurance Executive, EMEA, Northern Trust Asset Servicing

The trustee’s agenda this year was already full, now thanks to the release of the long-awaited new General Code of Practice ahead of schedule by The Pensions Regulator, matters have just got worse.

Thankfully in our case, we put in place a governance committee couple of years ago to deal with the increasing regulatory burden. The governance committee will take care of most of the heavy lifting and will help to meet the effective system of governance (ESOG) requirement. While it is welcome that the code is not mandatory at this point in time given the packed agenda, it does seem a missed opportunity for the industry to improve governance.

Before this extra piece of work, the trustee’s to do list was already packed with a number of priorities. Key priorities and activities in 2024 will be dominated by the value for member assessment (VFM), the increased focus on trustee knowledge and understanding (TKU) and in our case updating our cyber security planning. All these activities are on top of the trustee’s ‘business as usual’ work of monitoring investment performance, evaluating investment options, and reviewing retirement choices for members.

On the TKU, we have strengthened both the formal training and the quarterly recording of relevant industry events - something we are encouraging our trustees to attend more frequently. Our employer is supportive of individuals taking the extra time out of their day jobs to fulfil the trustee role. Not all employers are, but nevertheless individuals still feel the increased focus and time commitment.

This year the VFM process will be our third since it came into force. While we have been comfortable, given the overall positioning of the pension scheme, to have evaluated ourselves as offering good value for money for our members in previous years, it is easy to see that it is becoming more difficult as the master trust market moves on and the hurdles gets higher.

We are adding new funds to our investment options but have yet to consider adding  alternative investments in the scheme offering, including the Long Term Asset Fund (LTAF).  We have heard the investment case for LTAF, however concerns with the increasing average age of our scheme membership, a modest asset allocation via our diversified growth fund (DGF) plus our experience with gating in property funds are all currently keeping this on the back burner.

As retirement offerings are increasingly in focus with the re-emergence of annuities as a viable option in some situations, there is the much talked about potential of Collective Defined Contribution (CDC) to provide a third option alongside drawdown and annuity. When CDC is permitted in multi-employer schemes and takes off, then this will certainly add to the master trust consideration.

While each one of these challenges are individually surmountable, when they are combined, they start to prompt the big question: could this be the year that the transfer to a master trust becomes our inevitable future?

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