Methodology
Promoting transparency for better pension outcomes
The Global Pension Transparency Benchmark process
The GPTB measures whether pension organisations are disclosing what they do and how they are generating value for stakeholders clearly, completely, and concisely. The disclosures scored were organised into four equally weighted factors: cost, governance, performance, and responsible investing.
The review included fund websites, annual reports, financial statements, and various other published documents. Reasonable, but not exhaustive, efforts were made to find information. There were no questions asked of the pension funds reviewed about their disclosures (eg location of information, interpretation of documents). The premise is that key disclosures should not require extensive effort and time to find and understand. Transparency means information is easily accessible, ipso facto.
Disclosures were scored as objectively as possible, mainly using yes/no answers related to what is disclosed/not disclosed. For some disclosures, where there were wide ranges in the information value and clarity, a more subjective 0,1,2 scale (not disclosed/basic/excellent) was applied.
Disclosures related to outcomes or results were scored but the outcomes themselves were not. For example: Is a long-term (10 years or more) total fund return disclosed? Answer is (yes/no) and the actual long-term return achieved was not scored (if disclosed).
Clearly, outcomes are important. However, it is often not feasible to compare them using public disclosures because of differences in what is disclosed and the lack of standardisation.
It is recognised that disclosure quality cannot be completely captured by simple objective questions. Therefore, the focus was on identifying and reporting best practice examples. These examples show how important and complex information can be communicated with clarity and impact.
This year 15 countries were selected to include in the inaugural ranking. The selection criteria was robust national pension systems with representation from all continents. The five largest pension management organisations (by AUM) within each country were scored to determine the country rankings. These organisations included DB and DC pension funds, reserve funds and sovereign pension funds. Ideally, more countries and more funds within countries would be included. However, the review work was time intensive. The project scope was aligned with available resources and an emphasis on quality work.
It would be remiss to not recognise the contribution that several organisations have made to improving transparency and disclosure standards. Higher scores generally, as well as several best practice examples highlighted, involved explicit use of their frameworks and standards. These organisations included the following:
Climate Disclosures Standards Board (CDSB)
Global Reporting Initiative (GRI)
International Accounting Standards Board (IASB)
International Integrated Reporting Council (IIRC)
Sustainability Accounting Standards Board (SASB)
Task Force on Climate Related Financial Disclosures (TCFD)
United Nations – Principles for Responsible Investing (PRI)
United Nations – Sustainable Development Goals
VBDO – Dutch Association of Investors for Sustainable Development
Key challenges
A key challenge was to design questions that provided the flexibility to accommodate key differences across funds. Reasonable, but not perfect comparability, was achieved. These comparability challenges included:
- plan type (e.g. DB, DC and combinations of both)
- organisational mandate (investment only, investment and member services)
- regulatory framework (e.g. pension insurance and trust models)
- competitive environment (funds compete for members or have captive members)
- languages – Google Translate was a valuable tool for the project team. However, translating technical material across 11 languages and varying print formats is not fool-proof.
All the research and analysis work was conducted by CEM Benchmarking which accepts responsibility for any errors and inconsistencies.
Factor assessment component questions
Cost.
Total fund cost
Are the fund’s costs discussed somewhere other than just the financial statements?
If yes, is it disclosed in total local currency?
If yes, is it disclosed as % of assets or per member or in some way other appropriate context such as Varma’s % of insurance contribution)?
If yes, are prior years’ included for comparison?
Does the investment expense/asset management costs discussed in the annual report include:
- External management fees? N/A if no externally managed assets
- Internal operating costs (salaries, trading systems, risk management, etc.)?
- Allocation for shared overhead/back office costs such as governance, operations, building, etc.?
- Transaction costs?
General review of the level of disclosure, marks are awarded if the following items are separately disclosed anywhere in the report (f/s, schedule, notes, etc.)
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- External management base fees
- External management performance fees separately disclosed
- Transaction costs
- Total Internal operating costs (salaries, trading systems, risk management, etc.)? If outsourced, separate disclosure of other costs such as fiduciary, oversight, custody, admin, etc.
- Total salary and benefits of employees
- Total overhead, premises & equipment
- Total professional & consulting (third party suppliers, not just what was paid to the auditors)
- Private assets capital committed, outstanding commitments, net capital and FV.
- Selling expense (applicable to third party DC, sometimes commission for insurance type pension assets, etc.)/bonus marks if other disclosure in DB not already listed – note what it is in ‘notes’
Member service cost disclosure – if applicable
If applicable, are member service/administration costs disclosed separately other than in financial statements?
Is member service/administration costs also disclosed per member?
Are prior years’ member service/administration costs included for comparison?
Is there any strategy discussion or explanation for change in member service/administration costs?
Can you find the following separately disclosed in the report for just the administration functions? Questions apply even if outsourced.
- Administration salary and benefits of employees
- Administration overhead, premises & equipment
- Administration professional & consulting (third party supplies)
Asset class/option level disclosure
For DC plans, review one of the large investment options. Are the following disclosed by asset class/investment option?
- Management base expenses
- Performance fees separated
- Transaction costs
- Are prior years’ for comparison?
- Is disclosure made as a % of assets?
- Is implementation style disclosed?
- Is internal management, oversight or total costs disclosed by asset class too? (For DB only, if DC then n/a)
- Is administrative cost for DC options disclosed [DB n/a, 0%)
- Is selling cost for DC options disclosed (entry, exit, switch, buy sell spread, etc.) (DC only if DB, n/a 0%)
Completeness of external management fees
Recognizing different accounting practices around the world, credit was given for clear disclosure irrespective of whether included in financial statements. Credit depends on estimating the amount and how clearly it is presented. Each system will have one response only from the possible responses listed. Additional marks award for disclosure irrespective of treatment. For DC plans evaluated the completeness of the disclosure of asset management fees at the option level.
Possible responses, which are mutually exclusive;
- All external management fees and no netting of private asset management fees
- All external management fees but silent on treatment of rebates and offsets on private asset management fees or nets them.
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- Additional marks if schedule to estimate rebates/offsets is separately provided.
- Include fees invoiced or otherwise disclosed in capital call or notices (therefore pooled, fund of fund fees, funds that net directly would not be captured)
- Additional marks if an estimate of non-invoiced fees are provided.
- All except private asset performance fees or if unclear what the treatment is with private asset performance fees?
- Additional marks awarded if the amount is estimated and rationale of exclusion is provided.
- Partial additional marks awarded if amount is estimated but no discussion of rationale behind exclusion.
- All except all performance fees or if unclear what the treatment is for performance fees?
- Additional marks awarded if the amount is estimated and rationale of exclusion is provided.
- Partial additional marks awarded if amount is estimated but no discussion of rationale behind exclusion.
- All but excludes all private asset fees
- Additional marks awarded if the amount is estimated and rationale of exclusion is provided.
- Partial additional marks awarded if amount is estimated but no discussion of rationale behind exclusion.
- Exclude all external management fees
- Additional marks awarded if the amount is estimated and rationale of exclusion is provided.
- Partial additional marks awarded if amount is estimated but no discussion of rationale behind exclusion.
- No discussion and no disclosure
Is the accounting method for cost disclosed?
Cash or accrual? Note if more than 1 method, answer wrt management fees.
Transaction cost disclosure and completeness (for DC investment option level)
Brokerage commission (including stamp duties)
Fixed income and/or foreign currency (implicit) spreads (in future perhaps split this out)
Other eg. Switching/entry/exit fees on pooled funds, market impact, etc.
Private asset transaction costs and/or collective investment units
Governance.
Governance structure and mission
- Is the overall governance structure for the fund outlined?
- Does the fund have a clear mission statement identified as such?
- Are all sub-committees listed?
- Are the parties responsible and methods for selecting the board member outlined?
- Are all the members of the board of directors named and listed?
- Are the sub committees that each member sits on documented?
- Is the start date and each members term listed?
- Are the oversight responsibilities of the board and each sub committee available for view, or at least a detailed summary?
- Is the board’s conflict of interest policy detailed as well as how real or apparent conflicts are dealt with?
- Are the fund’s processes for monitoring portfolio companies, including proxy voting policies disclosed?
Board competencies and qualification
- Are board members experience and relevant qualifications listed?
- Are the desired competencies of the board of directors listed?
- Are actual board member competencies contrasted against desired competencies?
- Are changes to the governance process and/or structure (if any) in the prior year discussed?
- Are continuing education policies for board members documented?
- Are board effectiveness reviews discussed?
- Are the number of meetings of the the board and each subcommittee documented?
- Is the attendance record of each member of the board recorded?
- Is the attendance record of each member of a sub committee documented?
Compensation, HR and organisation
- Are processes and/or philosophies for determining compensation for management disclosed?
- Are processes and/or philosophies for determining compensation for the board disclosed?
- Is compensation for board members shown?
- Are the names and titles of the CEO and top four direct reports available?
- Is total compensation for the CEO and the two next highest comped management members disclosed individually?
- Is variable compensation for the CEO and the two next highest comped management members disclosed separately?
- Is total staff compensation disclosed?
- Is the total organisational headcount disclosed?
- Are the fund’s employment diversity policies listed?
- Are specific diversity targets listed?
Organisational strategy
- Is the fund’s mix of/philosophy for active/passive strategies disclosed?
- Is the fund’s mix of/philosophy for internal/external investment management disclosed?
- Is the amount spent on external consultants disclosed?
- Are the fund’s corporate goals discussed for the previous year?
- Are the fund’s corporate goals for the following year discussed?
Performance.
Total fund or investment option returns and value added
- Are 1-year returns disclosed? DC: For investment options?
- Are intermediate returns disclosed (any of between 3 and 7-year)? DC: For investment options?
- Are long-term returns disclosed (10 years or longer)? DC: For investment options?
- Is 1-year VA and/or PR disclosed? DC: For investment options?
- Is intermediate VA and/or PR disclosed (any of between 3 and 7-year)? DC: For investment options?
- Is long-term VA and/or PR disclosed (10 years or longer) DC: For investment options?
- Is there disclosure of ‘current’ (e.g. monthly or quarterly) performance? DC: For investment options?
Asset class and value added
- Are 1-year returns disclosed?
- Are intermediate returns disclosed (any of between 3 and 7-year)?
- Are long-term returns disclosed (10 years or longer)?
- Are 1-year VA and/or benchmark returns disclosed?
- Are intermediate VA and or benchmark returns disclosed (any of between 3 and 7-year)?
- Are long-Term VA and or benchmark return disclosed (10 years or longer)?
Clarity on basis for return and value added calculations
- Is cost basis of return calculations disclosed?
- Are TF returns expressed net of investment costs? DC: For investment options?
- Are asset class returns expressed net of investment costs?
- Is basis for return calculations disclosed (eg. IRR, TWRR)?
- Are return calculations TWRR?
- Is TF Net VA disclosed? DC for investment options?
- Is asset class Net VA disclosed?
Explanation of key results and outlook
Recognizing different accounting practices around the world, credit was given for clear disclosure irrespective of whether included in financial statements. Credit depends on estimating the amount and how clearly it is presented. Each system will have one response only from the possible responses listed. Additional marks award for disclosure irrespective of treatment. For DC plans evaluated the completeness of the disclosure of asset management fees at the option level.
Possible responses, which are mutually exclusive;
- All external management fees and no netting of private asset management fees
- All external management fees but silent on treatment of rebates and offsets on private asset management fees or nets them.
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- Additional marks if schedule to estimate rebates/offsets is separately provided.
- Include fees invoiced or otherwise disclosed in capital call or notices (therefore pooled, fund of fund fees, funds that net directly would not be captured)
- Additional marks if an estimate of non-invoiced fees are provided.
- All except private asset performance fees or if unclear what the treatment is with private asset performance fees?
- Additional marks awarded if the amount is estimated and rationale of exclusion is provided.
- Partial additional marks awarded if amount is estimated but no discussion of rationale behind exclusion.
- All except all performance fees or if unclear what the treatment is for performance fees?
- Additional marks awarded if the amount is estimated and rationale of exclusion is provided.
- Partial additional marks awarded if amount is estimated but no discussion of rationale behind exclusion.
- All but excludes all private asset fees
- Additional marks awarded if the amount is estimated and rationale of exclusion is provided.
- Partial additional marks awarded if amount is estimated but no discussion of rationale behind exclusion.
- Exclude all external management fees
- Additional marks awarded if the amount is estimated and rationale of exclusion is provided.
- Partial additional marks awarded if amount is estimated but no discussion of rationale behind exclusion.
- No discussion and no disclosure
Is the accounting method for cost disclosed?
Cash or accrual? Note if more than 1 method, answer wrt management fees.
Benchmark disclosures
- Is there clear and specific disclosure of the benchmarks or target returns used at the total fund or investment option level?
- Are public market asset class benchmarks appropriate (e.g. investable indices that match the asset class descriptions)?
Asset mix and portfolio composition
- Is the current asset mix disclosed across major asset classes or options?
- Is there any asset mix trend disclosure?
- Is there portfolio composition disclosure related to:
- Geographic concentration overall or by asset class?
- Holdings: list of largest holdings of individual companies, FI securities, unlisted individual investments (E.g. $2 billion of Boeing shares; 1.2% of total Boeing equity, 3% of equity portfolio), or disclosure of all holdings
- List of largest external managers, for some asset classes, or disclosure of all external managers
- Disclosure of other portfolio composition factors: e.g. % listed/unlisted, FI categories, derivative types, types of real estate and mortgage holdings, types of PE, infra, etc. Score of 1 for each factor disclosed to a maximum of 3.
Risk management policies and specific risk measures
- Are investment/financial risk management governance, policies and practices disclosed?
- Are non-investment risk factors and related governance and management practices disclosed? (e.g. regulatory/legislative, reputational, operations, cyber-security, systemic risk)
- Is there disclosure of actual risk levels for the following factors:
- Are actual risk levels disclosed for the total portfolio or for asset classes?. Examples of measures: Value at Risk (VAR), volatility, probability of a negative annual return
- Disclosure of additional risk factor measures: (e.g. counterparty, credit quality, liquidity, FX, derivatives exposure, concentration).
- Disclosure can be the specific exposure, or the policy adhered to in the portfolio (e.g. for concentration risk, counterparty conditions, etc.). Score of 1 for each factor disclosed to a maximum of 3.
Member service, if applicable
- Are any of: Customer satisfaction, customer effort or net promoter scores disclosed?
- Are any service performance metrics for member transactions or life events disclosed?
- Is member service performance explained with reference to external benchmarks?
- Are member service goals, progress and plans discussed?
Funded status and discussion of assumptions and risks
- Funded Status/Solvency – for DB and insured plans
- Is the current funded ratio or solvency position disclosed?
- Is the trend in funded ratio or solvency position disclosed?
- Are key assumptions disclosed (e.g. longevity, mortality table, return assumptions, interest rate)
- Is there discussion of the sensitivity of funded ratio/solvency position to assumptions/scenario changes/returns?
Responsible Investment.
Responsible investing framework and reporting
- Has the fund established a policy/framework for responsible investing?
- Does the fund include a climate change policy (either as part of the overall RI policy or a distinct stand-alone policy)?
- Are responsible investing processes/reports verified by an independent third party?
- Is ESG/sustainability included as part of the mission/values/overall strategy for the fund?
- Are goals/targets for responsible investing disclosed and clearly laid out?
- Does the fund provide how they have progressed on their RI goals/targets (eg. year over year changes/improvements)?
- Are quantitative KPIs included as part of the progress report on RI goals/targets?
- Does the fund comply with the Global Reporting Initiative (GRI) for reporting purposes?
- As part of the climate change goals, does the fund provide data on its portfolio’s carbon footprint?
- Does the fund disclose the climate-related risks and opportunities for investments/(and/or portfolio)?
- If the fund does disclose climate-related risks and opportunities, does the fund follow the recommendations as outlined by the Task Force on Climate-related Financial Disclosures (TCFD)?
Responsible investing governance
- Does the fund disclose whether responsible investing is part of the board’s oversight?
- Does the fund disclose how responsible investing is integrated at the executive management level (i.e., CEO, CIO, etc.)?
- Has the fund disclosed a designated role/team to oversee the responsible investing mandate for the fund?
- Is responsible investing integrated within each asset class team?
- Does the fund disclose whether responsible investing has an impact or is a component of staff compensation?
- Does the fund disclose whether responsible investing has an impact on the organisation’s scorecard?
- Does the fund disclose whether ESG training or education is provided to its staff?
- Does the fund disclose how it engages with its members on ESG related matters (i.e., survey members on ESG)?
Responsible investing implementation
Exclusion
- Does the fund use negative screening or enhanced ESG monitoring as part of the investment process?
- Is the criteria used for negative screening (exclusion policy) or enhanced monitoring provided?
- Does the fund implement an exclusion/negative screening/enhanced monitoring for each asset class?
- Does the fund disclose the number of exclusions (eg. 300 investments are excluded)?
- Does the fund provide a detailed list of excluded investments (individually listing investments that are excluded)?
Active ownership
- Does the fund have and disclose an ownership policy that outlines engagement activities with investees?
- Does the fund summarise engagement activities conducted and what the resulting outcome was?
- Does the fund disclose which ESG factors the fund is focused on or prioritising in its engagement efforts?
- Does the fund provide a breakdown of the engagement efforts undertaken categorised by each ESG factor?
- Is the policy for active participation in general shareholder meetings and exercising voting rights (either in person or by proxy) disclosed?
- Does the fund provide examples of their voting record?
- Does the fund provide the number of shareholder meetings and votes cast?
- Does the fund disclose its policy on nominating board of directors?
- Does the fund’s active ownership policy outline requirements for board composition?
- Does the fund’s active ownership policy outline requirements for remuneration/executive pay?
- Does the fund’s active ownership policy have an embedded climate change policy?
- Does the fund’s active ownership policy have an embedded ESG policy?
- Does the fund provide access to their voting records?
Responsible investing implementation – Impact Investing
- Does the fund invest in companies that promote sustainability (eg. microfinance, renewable energy, green bonds, etc.)?
- Do the impact investing strategies utilise or align with the United Nations, Sustainable Development Goals?
- Does the fund provide a list/examples of investments that are part of impact investing?
- Does the fund disclose its goals for impact investing for the investments discussed?
- Does the fund disclose the results of impact investing (what was achieved) for the investments discussed?
- Does the fund disclose the dollar value (or % of assets) that impact investments accounted for?
- Does the fund implement impact investing across all relevant asset classes?
Responsible Investing Implementation – ESG Integration
- Does the fund disclose if it is a PRI signatory (participate in the United Nations Principle for Responsible Investing)?
- If the fund does disclose it is a PRI signatory, does the fund provide its annual PRI assessment report (including the summary scorecard)?
- Does the fund disclose its policy for responsible investing for external managers (including specifics such as climate change)?
- Does the fund disclose whether or not external managers are required to be PRI signatories?
- Does the fund disclose/include the impact of ESG factors on risk management?
- Does the fund use an investment level framework SASB (Sustainability Accounting Standards Board) to help identify material ESG issues/risks for an investment?
- Does the fund disclose how responsible investing is integrated into the investment process for each asset class?
- Does the fund use a third party to assess the ESG performance or compliance of private assets or investments (i.e., GRESB, etc)?
- Does the fund disclose the goal/mandate for ESG integration across the portfolio ($ or % of portfolio)?
- Does the fund disclose how they are progressing on integrating ESG ($ or % of portfolio changes year over year)?
Introducing the GPTB
Please note, your details will be shared with both CEM and Top1000funds.com. Your data will never be shared with any other organisations or third parties.