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Pensions Alert - Updating the Myners Principles: Seven Years On

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EVERYTHING MATTERS

14 November 2008

Pensions Alert
Updating the Myners Principles: Seven Years On
Summary On 3 October 2008 the Government published a response to its consultation regarding its proposals to update the Myners principles and the new industry-led framework for their application. The response confirmed a reduction in the number of principles in favour of focusing on a smaller number of higher level principles linked to more selective and more accessible guidance and trustee tools. The response also confirmed that decisions on the nature, scope and future development of the principles, best practice guidance and trustee tools would be the responsibility of a new Investment Governance Group (IGG) chaired by the Pensions Regulator (TPR). Background In March 2001, Paul Myners published the findings of his review into institutional investment practices. The Myners Report concluded that distortions arose in institutional investors' decision-making as a result of pension fund trustees (amongst others things): lacking investment expertise; relying heavily on a small pool of investments and consultants; and lacking clarity in respect of investment returns and the time horizons over which managers' performance would be judged. To remedy this, the Myners Report suggested a list of 10 best practice principles for trustees to follow. The Myners Principles were then adopted by the Government as best practice for trustees but were not mandatory. In 2004, a review into how effective the Myners Principles had been in improving investment decision-making by pension schemes was undertaken by the Treasury. The review concluded that there was still room for improvement and proposed strengthening and amplifying the Myners Principles in areas where progress had lagged e.g. smaller schemes. However, nothing further was done to implement the suggested improvements following this review. The NAPF agreed to undertake a further review in 2007 to measure the application of the Principles by trustees. The NAPF produced a modified set of the Principles and recommendations as to how these could be further developed to remain relevant in a pensions world that had changed markedly since their introduction in 2001. The recommendations made

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by the NAPF can be summarised as follows: voluntary compliance should remain at heart of the Principles, reinforced by a "comply or explain" approach to reporting; the Principles should be replaced with fewer higher level principles; high level principles should be supplemented by supporting guidance and toolkits to give trustees practical support; new approaches were required to help smaller schemes comply with the Principles; a refreshed set of Principles for DC schemes was required; the Principles should be co-owned by TPR and the pensions industry; and trustees should assess their own performance periodically. The NAPF's report set out a Principles Matrix listing 6 high level principles, supporting guidance and relevant tools. The Government agreed with the NAPF's principal findings and in March 2008 consulted on a modified version of the Principles Matrix produced by the NAPF. The latest publication is the conclusion of this consultation. Revised Principles The Revised Principles include: Effective decision making; Clear objectives; Risk and liabilities; Performance assessment; Responsible ownership; and Transparency and reporting. These principles will be the accepted code of best practice for trustees in respect of investment decision-making and governance. The Treasury expects that trustee boards will report against these on a voluntary "comply or explain" basis. IGG The Government has stressed that the IGG is not to be a Government-run committee but that the presence of HM Treasury and DWP representation simply serves to enhance the IGG's authority. The IGG will be charged with the following: promoting best practice in investment related governance by occupational pension schemes; encouraging and influencing improvements in standards for investment related governance/sharing of industry practice; taking ownership of the Revised Principles for institutional investment decision making; identifying best practice guidance and tools to assist trustees; and advising group sponsors on the state of investment related governance. Conclusion Although voluntary, pension fund trustees are expected to consider the Revised Principles and their applicability to their scheme, reporting on a "comply or explain" basis as to how they have been applied. Trustees therefore need to become familiar with the Revised Principles, establish a plan to ensure appropriate application of those Principles and monitor compliance with them. A summary of the Revised Principles and links to existing guidance can be found here.

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Editor : Tamara Calvert

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