A key discussion paper[1] focusing on the standards of pension scheme trusteeship and governance in the UK has been released by the Pensions Regulator (Regulator).  It puts a number of questions to the pensions industry as the basis for consultation and could lead to the biggest shake up of the professional trustee market in years.

The paper draws conclusions from research commissioned by the Regulator[2] and suggests ways in which the standards of trusteeship and governance might be improved.

The researchers interviewed more than 800 trustees of defined benefit, defined contribution and hybrid single and multi-employer and non-associated multi-employer pension schemes.

Why is the Regulator suggesting a review of standards?

One of the Regulator’s statutory objectives is to “promote and to improve understanding of the good administration of work-based pension schemes”. Understanding whether the trusteeship and governance arrangements in place for managing £1.8 trillion of assets on behalf of 32 million members are fit for purpose will help the Regulator to achieve this objective.

What are the key findings of the Regulator?

The paper highlights the:

  • advantages and disadvantages of professional trustee appointments (for example expertise and impartiality but potentially over-reliance on a single individual);
  • benefits of trustee boards which have a diversity of skills and experience;
  • ease with which almost 75% of schemes were able to find suitable member nominated trustees;
  • disparity between the governance standards in small schemes (under 100 members) compared to medium (100-999 members) and large schemes (over a 1,000 members);
  • time pressures on trustees (27% of those surveyed spend fewer than four days a year on trustee duties);
  • potential for conflict where an employer is involved in the selection of member nominated trustees and/or the chair of trustees; and
  • a lack of formal process in the appointment of advisers.

How does the Regulator propose to deal with the problems identified?

The Regulator asks 13 specific questions for consideration by the pensions industry, including:

  • whether specific qualifications for professional trustees should be mandatory;
  • whether defined benefit schemes should be required to appoint a chair and to report on compliance with governance standards;
  • whether the chair of trustees should be required to have a minimum level of qualifications or experience;
  • how trustees can be helped to engage meaningfully with third party providers and advisers; and
  • how best to deal with conflicts of interest which arise in the running of a pension scheme.

What next?

Through this paper the Regulator has clearly set out its desire to ensure all trustees act professionally, even if it does not expect all individuals in the role to be trustees by profession.

Building on the work of the Pensions Management Institute and the Association of Professional Pension Trustees, which have proposed the introduction of a new trustee qualification[3], the Regulator also appears to make some form of regulation of professional trustees and/or a minimum qualification requirement a strong possibility. For many professional trustees up and down the country until publication of the Regulator’s response to the consultation, it will be a case of “watch this space”…

Responses to the discussion paper have been requested by 9 September.

A link to the consultation can be found here: http://www.thepensionsregulator.gov.uk/docs/21st-century-trusteeship-governance-discussion-2016.pdf

This post was contributed by Suresh Bhatt. For more information, email blogs@gateleyplc.com, or visit http://www.entrustpension.com 

[1] 21st Century Trusteeship and Governance, Discussion paper  – July 2016

[2] Trustee landscape quantitative research dated October 2015 and Trustee landscape qualitative research dated July 2016 conducted by OMB research.

[3] The PMI and the APPT have launched a consultation on the proposed introduction of a diploma in pension trusteeship.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.