OECD to advocate better pension scheme governance, greater sponsor role in DC

The organisation is preparing a report which will highlight trustees' conflicts of interest - and a 'vacuum' of governance at defined contribution schemes.

PARIS (Thomson IM) - Pension schemes must improve their governance structure to better engage with companies and invest in new asset classes, while sponsors should be encouraged into a more active role running their defined contribution (DC) schemes, the OECD will recommend in a forthcoming report.

Fiona Stewart, of the OECD's financial affairs division, told the World Cup of Investment Management conference in Paris, that the organisation is in the process of reviewing its pension fund governance guidelines to accommodate recent issues.

She said that as pension schemes become more active shareholders, governance issues such as conflicts on interest in the trustee boards, are likely to become more and more prominent.

Trustees should not only be trained in different financial issues to face the changing and more complex fund management products, but should also bring in experienced staff when they finally make those changes.

'Trustees are not necessarily allocating new staff for new investments and we are not always practising what we are preaching,' Stewart said in the course of a panel discussion.

But the OECD believes that whereas trustees of defined benefit schemes are facing the challenge to become more transparent, it has found 'almost a vacuum' in the governance of DC schemes.

Stewart noted that although most DC arrangements are officially a contract between workers and fund managers, they are usually managed collectively, and the sponsor usually chooses the fund manager. Once this choice is made, there is generally little or no supervision of the manager.

To change this, the OECD is working on 'safe-harbour' guidelines, to encourage sponsors to take a more dynamic role in the administration of DC schemes, but without binding them.

'We are reviewing our guidelines at the moment and we want to hear from you so we can make sure that these guidelines are approachable,' she told the conference delegates. The report is due out this year, although Stewart was not able to give a more precise deadline.

She also commented on the governance of sovereign wealth funds and sovereign pension funds, saying the latter tend to be more transparent and better run than the former. The OECD is also compiling a new report on such funds.

From Cecilia Valente in Paris: +44 (0) 20 7422 4925; cecilia.valente@thomson.com

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