Methodology
Promoting transparency for better pension outcomes
The Global Pension Transparency Benchmark process
Disclosures continue to be scored across four equally weighted factors: cost, governance, performance, and responsible investing.
Reaction and feedback received from funds and other industry stakeholders on last year’s review was largely positive. The framework used is effective at portraying an accurate picture of the level of disclosures observed in the reviews. Keeping the framework static year over year brings with it the advantage of direct comparability and the ability to observe trends. That said, certain subtle changes to some aspects of the reviews have been made, as outlined below.
Similar to last year, reviews 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. The focus remains on identifying and reporting best practice examples that show how important and complex information can be communicated with clarity and impact. This year’s review uncovered more best practice examples which in many cases highlight the continuous focus on improving disclosures shown by many leading organisations.
To provide some quantitative measure to disclosure quality, “bonus” marks have been awarded for organisations which have adopted the Integrated <IR> Reporting Framework as promulgated by the International Integrated Reporting Council. While there were numerous examples of quality disclosures from organisations that haven’t adopted the <IR> framework, the disclosures of organisations that have were universally high quality. The quality of disclosures for most organisations could be improved by adopting the <IR> framework.
This year the same 15 countries included in the inaugural ranking were reviewed. 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.
More countries and more funds within countries will be added over time.
Disclosures continue to be scored across four equally weighted factors:
- The scoring criteria did see some relatively minor modifications;
- Two questions from the performance factor were moved to the governance and organisation factor with an equal number of questions moving in the opposite direction. These changes reflected the format of observed disclosures. Topics disclosed together are best scored within the same factor.
- Certain questions proved to be more ambiguous than anticipated these have been modified to provide more clarity.
- During the reviews some disclosures were identified that were not included in the assessment criteria last year but were thought to be useful and these have been added.
- Several questions employed reflect best practice but were fleetingly rare and/or not overly informative when included. These questions have been removed but could be restated in future years if warranted.
- The scoring methodology for responsible investing was modified. Funds that explicitly state that they do not use exclusion but instead choose to engage with portfolio companies will now have marks previously assigned to exclusion, allocated to engagement.
Last year’s scores have been restated based on this year’s scoring rubric. We did not go back and score new questions, but rather allocated the respective marks proportionally.
The impact of the changes to the scoring rubric were minimal at the fund and country level. The impact of the revisions on last year’s scores can be viewed here.
The fund assessments were conducted between August 1 -December 31, 2021. Where the scores are the same, a joint ranking has been awarded listed alphabetically.
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, 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
- 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 in a prominent location, other than just the financial statements? e.g., management discussion & analysis, annual report overview, key takeaways/KPIs,?
- If yes, are they disclosed in total local currency?
- If yes, are they disclosed as % of assets or per member or in some way other appropriate context such as % of insurance contribution?
- If yes, are prior years’ included for comparison?Is there evidence in the disclosures that the fund is actively managing costs? For example, a comparison against third-party benchmarks, comparisons against budgets/forecasts.
Do the investment expense/asset management costs discussed in the prominent location (noted above) include:
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- External management fees? Not applicable if no externally managed assets.
- Internal operating costs (e.g. salaries, trading systems, risk management)?
- Allocation for shared overhead/back-office costs such as governance, operations, real estate costs?
- Transaction costs?
General review of the level of disclosure, marks were awarded if the following items are separately disclosed, regardless of location:
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- External management base fees,
- External management performance fees,
- Transaction costs,
- Total Internal operating costs (e.g. salaries, trading systems, risk management) and if outsourced, separate disclosure of other costs such as oversight, custody, and administration,
- Total salary and benefits of employees,
- Total overhead, premises & equipment,
- Total professional & consulting costs and costs for third-party suppliers,
- For private assets: capital committed, outstanding commitments, net capital, and fair value,
- Selling expenses (applicable to third-party Defined Contribution funds, sometimes commission for insurance type pension assets).
Member service cost disclosure – if applicable
This section is applicable only to organizations who are also charged with administration of member pensions/benefits.
- Are member service/administration costs disclosed separately in a prominent location, other than just in financial statements?
- Are member service/administration costs also disclosed on a relative basis? (e.g., cost per member, cost as a % of holdings)
- Are prior years’ member service/administration costs included for comparison?
- Is there any strategy discussion or explanation for change in member service/administration costs?
- Are the following separately disclosed in respect of the administration functions (regardless of whether the functions are outsourced or performed in-house)?
- Salary and benefits of employees,
- Overhead, premises & equipment costs,
- Professional, consulting, and other third-party provider costs.
Asset class/option level disclosure
For defined benefit and insurance funds, asset class level disclosures were reviewed. For defined contribution plans, disclosure related to the largest funds (by AUM) were reviewed.
- Are the following item disclosed:
- Management base fees,
- Management performance fees,
- Transaction costs,
- Are prior years’ figures presented for comparison?
- Are disclosures made as a % of assets?
- Is implementation style (e.g. active/passive, internal, external) disclosed?
- Are internal management, oversight or total costs disclosed by asset class? (applies to defined benefit and insurance funds only.)
- Are administrative costs for defined contribution options disclosed? (applies to defined contribution funds only.)
- Is the selling cost for DC options disclosed (entry, exit, switch, buy sell spread, etc.) ((applies to defined contribution funds only.)
Completeness of external management fees
Recognizing different accounting practices around the world, credit was given for clear disclosure irrespective of whether disclosures were included in financial statements or in other areas. Credit depends on how clearly costs are presented and how well the basis of disclosure was described. For defined contribution plans we evaluated the completeness of the disclosure of asset management fees at the option level.
Possible responses, which are mutually exclusive, are listed below. Full credit was given if the first item on the list below was true, with credit given declining for each item in the list. Credit given reflects stated basis of disclosure. If the fund was silent on the basis for cost reporting, minimal credit was given.
- All external management fees reported with no netting of private asset management fees for rebates and offsets.
- All external management fees but silent on treatment of rebates and offsets on private asset management fees, or if rebates and offsets are explicitly netted.
- External fees based on fees invoiced or otherwise disclosed in capital call or notices (therefore pooled, fund of fund fees, funds that net directly would not be captured).
- External fees exclude private asset performance fees, or the treatment of private asset performance fees is unclear.
- External fees exclude all performance fees, or if the treatment of performance fees is unclear.
- Disclosure excludes all private asset fees.
- Disclosure excludes all external management fees, or no discussion of cost disclosure basis or costs.
Additional marks were awarded if estimates of amounts excluded from formal disclosures were provided and the rationale for exclusion was provided. Partial additional marks were awarded if estimates of amounts excluded from formal disclosures were provided but no discussion of rationale for exclusion was provided.
- Is the accounting method for cost disclosed?
- Is the cost basis (i.e., cost or accrual) disclosed?
Transaction cost disclosure and completeness (for DC investment option level)
Transaction cost disclosure & completeness
- Are brokerage commissions (including stamp duties) disclosed?
- Are fixed income and/or foreign currency (implicit) spreads disclosed?
- Are other costs, for example, switching fees, entry/exit fees on pooled funds, market impacts disclosed?
- Are private asset transaction costs and/or collective investment units disclosed?
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?
- Are the sub committees that each member sits on documented?
- Is the start date of each board member disclosed?
- Is the end of each board member’s term disclosed?
- 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 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?
- Were details provided on how actual management compensation was determined with reference to actual fund results?
- Is the total organisational headcount disclosed?
- Are the fund’s employment diversity policies listed?
- Is the fund’s total headcount disclosed by gender?
Organisational strategy
- Are investment/financial risk management governance, policies and practices discussed?
- Are non-investment risk factors and related policies and practices discussed? (e.g. regulatory/legislative, reputational, operations, cyber-security)
- Are the fund’s corporate goals, other than investment matters, discussed for the previous year?
- Are the fund’s corporate goals, other than investment matters, for the following year discussed?
- Are corporate achievements, other than investment matters, contrasted against corporate goals in a quantitative way?
Performance.
Total fund or investment option returns and value added
For defined benefit and insurance plans, questions are answered in respect of the total fund. For defined contribution funds, questions are applied to the largest investment options.
- 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)?
- Is 1-year value added and/or policy return/benchmark disclosed?
- Is intermediate value added and/or policy return/benchmark disclosed (any of between 3 and 7-year)?
- Is long-term value added and/or policy return/benchmark disclosed (10 years or longer) ?
- Is there disclosure of ‘current’ (e.g. monthly or quarterly) performance?
Asset class and value added
For defined benefit and insurance plans, questions are answered in respect of the total fund. For defined contribution funds, questions are applied to the largest investment options.
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- Are 1-year returns disclosed at the asset class level?
- Are intermediate returns disclosed (any of between 3 and 7-year) at the asset class level?
- Are long-term returns disclosed (10 years or longer) at the asset class level?
- Are 1-year value added and/or benchmark returns disclosed at the asset class level?
- Are intermediate value added and/or benchmark returns disclosed (any of between 3 and 7-year) at the asset class level?
- Are long-term value added and/or benchmark returns disclosed (10 years or longer) at the asset class level?
Clarity on basis for return and value added calculations
For defined benefit and insurance plans, questions are answered in respect of the total fund. For defined contribution funds, questions are applied to the largest investment options.
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- Is cost basis of return calculations disclosed?
- Are total fund returns expressed net of investment costs?
- Are asset class returns expressed net of investment costs?
- Is basis for return calculations disclosed (eg. IRR, TWRR)?
- Are return calculations time weighted rates of return?
- Is total fund net value added disclosed?
- Is asset class net value added disclosed?
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Benchmark disclosures
- Is there clear and specific disclosure of the benchmark composition at the total fund level?
- Is there clear and specific disclosure of the benchmark composition at the asset class or option level?
- Are most public market benchmarks appropriate (investable, generally match asset class)?
Asset mix and portfolio composition
- Is the current asset mix disclosed across major asset classes or options?
- Is the fund’s actual mix of active/passive strategies disclosed?
- Is the fund’s rationale/philosophy for active/passive implementation disclosed?
- Is the fund’s actual mix of internal/external strategies disclosed?
- Is the fund’s rationale/philosophy for internal/external implementation disclosed?
- 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, fixed income securities, unlisted individual investments, 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, fixed income categories, derivative types, types of real estate and mortgage holdings, types of private equity, infrastructure. Score of 1 for each factor disclosed to a maximum of 3.
Risk management policies and specific risk measures
Is there disclosure of actual risk levels for the following factors:
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- Actual risk level disclosures for total portfolio or options, asset classes and/or risk ‘factors’. Examples of measures include: Value at Risk (VAR), volatility, tracking error, probability of negative return.
- Disclosure of any additional risk factor measures. Examples include:. Counterparty risk, credit quality (ratings), liquidity, foreign exchange, derivatives exposure, portfolio concentration. Disclosures can be the specific exposure, or the policy adhered to in the portfolio . Score of 1 for each factor disclosed to a maximum of 3.
Member service, if applicable
This section is applicable only to organizations who are also charged with administration of member pensions/benefits.
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- 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
This section is applicable only to defined benefit and insurance organizations.
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- Is the funded ratio or solvency position disclosed?
- Is there any disclosure of trends in funded ratio or solvency position?
- Are key assumptions used to determine funded ratio or solvency position disclosed (e.g. mortality table, return assumptions, interest rate)
- Is there discussion of 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 disclose 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 (e.g. 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 specific investments and/or the total fund?
- 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?
Responsible investing implementation
Exclusion
- Does the fund use negative screening or enhanced ESG monitoring as part of the investment process? If the fund explicitly states that it does not practice exclusion, the marks from this section are re-assigned to the section on Active Ownership.
- 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 (e.g. 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 outcomes were?
- 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 for portfolio companies?
- 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 (e.g. microfinance, renewable energy, green bonds)?
- Do the impact investing strategies utilise or align with the United Nations, Sustainable Development Goals?
- Does the fund provide a list or 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 (i.e. that they 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 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)?
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