This edited book brings together 18 chapters and 24 authors on the topic of pension fund governance. While largely focused upon defined benefit pension plans, it makes reference to defined contribution schemes as well as the role of insurance in underwriting pension promises. It is almost entirely about UK legal principles, practices, and institutions. As such, it is a useful compendium on the UK approach to pension fund governance, especially as regards inherited arrangements and regulations. Nonetheless, after a brief introduction, the second chapter of the book sets out the OECD's approach to the regulation, supervision and governance of pension funds (Ashcroft, Yermo and Stewart). By now, this approach is quite well known and is regularly cited by academics concerned with understanding the form and functions of workplace pension schemes. A significant portion of this chapter is dedicated to the UK private pension sector.
The book was conceived to be a contribution to Cambridge University Press's Law Practitioner Series. In this regard, there are revealing contributions on fiduciary duty and social responsibility (Watchman), the responsibilities of trustees (Thomas), and the ways in which conflicts of interest should be acknowledged, managed and understood by reference to case law and statute (Gault, Brown and Wilkins). This reader was pleased to see these chapters, not least of which because they are reasonably up-to-date and make reference to recent case law as well as legal scholarship. Nonetheless, there are some gaps. For example, the connection between fiduciary duty, intergenerational equity and long-term investment is an increasingly important aspect of current discussion about how to sustain a genuine long-term investment strategy. At another level, and entirely consistent with legal advice and scholarship in this area, these three papers tend to look backwards identifying current expectations against the evolution of doctrine in this area. A related paper by Derbyshire, Hardy and Wilman takes up the issue of pension rights in the context of employment law.
A set of papers considers the issue of pension funding (Thornton and Fleming), employer obligations (Blackwood), regulations and accounting standards (Slack), and the ways in which pension plans should be managed (Gregory). These topics are all important, made especially so by virtue of recurrent financial crises, market volatility and tendencies towards economic recession (or worse) in the developed markets of the world. In the UK, of course, pension funding is overseen by The Pensions Regulator and, at the margin, underwritten by the Pension Protection Fund. While every private defined benefit pension plan must take into account the current and expected funding of pension promises, in current circumstances a balance must be struck between the current and expected funding of those promises and the employer's capacity to make the needed contributions to ensure that, over the long-term, pension promises are realized. Here, the employer covenant looms large! This approach to defined benefit pension funding is more consistent with contingent financing than is the case in other jurisdictions, notably the Netherlands and other EU countries.
There are a number of chapters devoted to investment management, including a chapter on historical patterns of asset allocation (Riley), a chapter on the best-practice governance of the investment process (Urwin) and two chapters on the investment management of defined contribution schemes (Thornton, Hauptmeier and Mannion). In addition, consideration is given to managing investment risk (Konotey-Ahulu), longevity risk (Patel) and the role of insurance in underwriting the pensions promise (Collinson). The book closes with a perceptive paper on UK legislation and expectations as regards ‘good governance’ (Deakin).
In many respects, this book is to be welcomed by pension professionals and academics. However, by focusing upon the history and current expectations as regards the governance of UK pension schemes (defined benefit and defined contribution), it is arguable that the ‘elephant in the room’ has been missed. Surely recent history shows the vast majority of UK private employers have decided that whatever the principles and practices of good governance, their interest in sustaining the pension promise or, for that matter, an adequate retirement income has practically evaporated. Various explanations have been advanced to explain the long term and accelerated decline of UK employer commitment to workplace pensions. Two chapters seem especially appropriate given the topic of this book. One would have it that government legislation in favour of pension fund governance has effectively divorced employers from having a legitimate and active involvement in the management of the schemes they underwrite. A second explanation follows on from the first: many schemes have been so poorly governed that employers have sought refuge from liabilities that only seem to grow.
By this account, recipes for ‘good governance’ obscure the fact that UK employers believe that the governance of these institutions has failed (and failed spectacularly). While many of the papers included in this volume recognize that all is not well with UK pension schemes, few address squarely and head-on the failure of an institution which was once so important for the retirement welfare of UK private sector employees.
