Using an umbrella fund? Set up a management committee too

15 June 2017Nigel Willmott, Citadel
Nigel Willmott, Head of Employee Benefits at Citadel.

Nigel Willmott, Head of Employee Benefits at Citadel.

Over the past decade we have seen a progressive migration from “stand alone” group retirement funds to “umbrella fund” participation, in a drive to reduce administration charges through economies of scale.

But oversight of a scheme remains important. In stand-alone funds, each retirement fund requires a board of trustees. Initially, when umbrella fund participation was marketed, convenience was a selling point as trustees were no longer necessary. The over-arching umbrella fund has a board of independent trustees in place which means that the employer does not need to exert oversight in this regard.

However, for plain and simple reasons of good governance, if no other, employers should adopt a management board principal to ensure appropriate practice management and sound governance by setting up a management committee to oversee the functioning of the scheme and measure and monitor service providers. If structured correctly – with equal employer and employee representation – a management committee can achieve these aims.

The management committee should have an agreed Code of Conduct or a Management Committee Charter that is adopted and enforced. All the functions (albeit somewhat simplified) that a Board of Trustees would previously execute should be adopted by a representative management committee.

There are a number of key players involved in the effective management of retirement funds, including benefit consultants, fund administrators, risk underwriters and investment managers.

The benefit consultant is the liaison between the scheme and the service providers and is responsible for the form and function of the scheme and monitors the appointed service providers. The fund administrator is responsible for cash flow management and general member record keeping while the risk underwriter provides the risk benefits to members and pays claims.

Investment managers are responsible for managing scheme assets. Particular skill and diligence is required in this space depending on the aims and objectives of the scheme and the appointment can be a simple or a more complex one, depending on the expectation and level of sophistication of the stakeholders. In addition to an investment manager, a fund may use the services of an investment consultant.

In addition to adopting a structured approach to governance and oversight, it would be appropriate for umbrella scheme participating employers, through their management boards, to form and document any investment decisions and reduce these decisions and conclusions into an Investment Strategy Document or an Investment Policy Statement. And this document should be reviewed annually.

This is a key risk mitigation function that should be adopted. It protects the sponsor employer, the members and the management committee and provides a structured framework and conclusive thought process.

Management committees have a duty and obligation to ensure that they effectively, regularly and clearly communicate with their scheme members. Communication is often overlooked. Access to information needs to be promoted and members should be encouraged to take the necessary steps to interact actively and access freely available information.

Management committees, together with their service providers, should adopt and agree a Communication Policy that clearly details what will be communicated and when. An effective and open communication programme assists in maintaining trust amongst scheme members and promotes confidence in their employee benefit program.

Finally, the management committee needs to ensure that suitable service level agreements are in place with each of the fund’s service providers. Clear agreements that detail the services rendered for the fees charged. With remedial action stipulated in the event that the service is inadequate.

Quick Polls


The FSB is thinking of scrapping Level II Regulatory Exam (which would have tested product knowledge) in favour of an approach that forces insurers to train staff and monitor their actions. Do you agree with this approach?


Yes. The Level II Regulatory Exams were a massive headache for those who had to write them
No. At least with the exams you knew who were the top achievers. A lot of trust now needs to be given to insurers.
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