DWP launches pension scheme voting task force
Minister noted time was up to wait for industry to make a change
Pensions Minister Guy Opperman has announced the establishment of the Taskforce on Pension Scheme Voting Implementation, with a focused remit to help trustees and in-house teams stay in control of their shareholder rights.
The taskforce, led by chair Simon Howard, former chief executive of the UK Sustainable Investment and Finance Association, and deputy chair Sarah Wilson, founder and CEO of Minerva, will focus on three key areas, the minister said.
- Facilitating the delivery of solutions to voting system issues that can overcome the present obstacles to trustees implementing their own policies.
- Increasing the number of asset managers who are prepared to engage with their clients’ preferences and follow – or as a minimum “align or explain” – on trustee voting policies, including via pooled arrangements.
- Whether it can recommend regulatory and non-regulatory measures to ensure the convergence of asset managers’ approaches to voting policy and execution with trustees’ policies and preferences, especially in pooled funds.
The taskforce will begin its work immediately, supported by, but independent of, the Department for Work and Pensions (DWP).
Speaking at the Association of Member-Nominated Trustees’ virtual conference to celebrate its 10th anniversary, the Parliamentary Under-Secretary of State at the DWP said the issue had been on his agenda since taking on the role in 2017.
“I queried why it was a pre-condition, when schemes invest in [pooled funds], that they surrender voting rights,” said the minister. “They get to choose the manager and the fund and with it the investment manager, but they don’t get to choose how to vote at annual general meetings for the companies’ shares they hold.”
More broadly, he said that trustees were too often asked to select funds “in advance on vague or sometimes non-committal voting policies and historic voting records which are opaque, inconsistent and sometimes incomplete”.
He added that it was vital for trustees to “set their own granular voting policy where they wish, and to expect to be able to find a manager who is willing to implement it at a fair price”.
Opperman explained why it was important to address the issue: “The investment chain is very long and very tangled, but ultimately you, as trustees of pension schemes, are the asset owners at the end of that chain. And when you act, the ownership chain gets tighter. That means better governance of firms in the real economy, more sustainable value creation and better outcomes for your savers.”
The minister said time had run out for leaving the matter to the investment industry to resolve itself, and now schemes and trustees should make the move instead.
Members of the AMNT will join the taskforce, and Opperman encouraged any trustee to report any poor practice they witnessed in this area.
Simon Howard said he heard, as noted by the minister, that technology had been cited as a blocker for improvements to current voting practices, along with the need for a general movement from the industry as a whole – but he shared Opperman’s scepticism on all points.
The pair also said they had been told that legal structures would not permit individual voting policies being implemented for pooled fund mandates, but having digested reports from Professor Iain Clacher and the Law Commission specifically citing instances that it was already being permitted for certain clients, his resolve had stiffened.
“Owners should be able to direct voting, and I think there are no insuperable problems,” said Howard. “I’m starting from the position stated in the taskforce name – we are implementing what is to be done. We are not debating.”
He said the taskforce’s aim would be to reach a consensus across the voting chain on various issues, and that he believed consensus could be reached.
“In particular on the trustees setting the voting policy it will be reached because of two marvellous British inventions: fiduciary duty and ‘comply or explain’,” said Howard. “Trustees will set guidelines at the level of best practice and will say to their agents ‘make sure our votes are cast in accordance with these instructions’. Not requests – instructions.”
He said the industry should be able to adapt.
“If those instructions are to act in accord with best practice, and if fund managers and voting advisory firms also intend to deliver best practice outcomes then there is an obvious alignment between the owner and the agent,” he said. “If anyone can tell me why that cannot work, please do so.”
Opperman said the move would ultimately make pensions “safer, better and greener”, as trustees made their – and their scheme members’ – voices heard on the issues that mattered to them, as this would in turn put pressure on company boards.
“I’m determined that this does work, and I believe that it will,” he said. “I realise that we could all sit back and do nothing, and one firm could emerge with some great innovation to make voting in pooled funds a really practical reality. But I don’t think it is right to sit back.”
The minister quoted a paper by the Investment Association on FinTech, which noted that “for tech adoption to succeed there must be a clear specific business problem to solve, together with an organisational culture and multi-level sponsorship that supports innovation”.
He said: “I believe this is a specific business problem crying out for a solution, which will allow asset owners to take ownership of their assets, however they invest.”