The Pensions Regulator’s 21st Century Trustee initiative inspired a previous blog by one of my Dalriada colleagues recently “Trustees in the 21st Century” and is now the subject of a discussion paper. What should a modern trustee look like and is regulation required?
Let’s face it, being a pension scheme trustee was never an easy job but it just seems that it is becoming more and more demanding. The demands being met by trustees require them to have a complex knowledge in the minefield that is now pensions and they are coming under increased scrutiny. This means that effective trustees need a high degree of knowledge and understanding. Trustees need to be knowledgeable of the whole pensions landscape, understanding such things as scheme funding, investment decisions, employer covenant and above all else the best interests of their membership in relation to that pension scheme. The wisdom of Solomon and patience of Job would seem apt for a trustee job description.
Having waited a while on a wider industry interest, the Association of Professional Pension Trustees (APPT) Council and the Pensions Management Institute (PMI) are also consulting on trustee regulation. In particular on the appetite for a Diploma in Pension Trusteeship, an optional professional qualification to evidence a persons ability to act as a professional trustee. The Regulator sees the qualification as “very much aligned with their 21st Century trustee initiative”.
Regulation of Professional Trustees
As I have said, the skills now required to be a trustee are more and more demanding so surely the regulation of those touting themselves as professionals can only be a good thing. A qualification that covers the key skills of pension trusteeship would set a new benchmark of transparency and governance and show commitment by the purported professional trustee. But let’s think a little further down the line. Could qualifications and regulation be beneficial for all trustees or might it scare away the already scarce supply of lay trustees. Is it a step too far for the lay trustee and will they feel threatened and out of their depth?
Lay Trustees the unsung heroes
Employer Nominated Trustees are often senior members of the management team, they understand the business and the covenant but have to tread very carefully around points of conflict.
Member Nominated Trustees are often long standing scheme members, they know the scheme at a practical level and they represent the thoughts and understanding of the membership. They can be invaluable for member relations and communication.
The existing governance requirements are already excessively onerous in time and cost for smaller firms struggling to cope with their legacy DB pension schemes. Engagement is already difficult, anything that makes it even more difficult to attract and retain quality lay trustees needs to be carefully considered.
The perfect blend
Managing any organisation is a team game; a good board of trustees has a broad range of skills and experience. ISORP 2 requires that the board of trustees is suitably qualified and experienced to dispense its duties, is the answer for all boards to have a regulated, professional trustee either as a sole trustee or alongside a group of lay trustees?
In a time of poor funding, ever evolving liberation scams and the increased publicity surrounding the likes of BHS and British Steel; people are concerned and are looking for comfort that someone trustworthy is looking after their entitlement. Research published revealed that 51% of schemes which had non professional trustees believed that not all trustees met the standards in the regulator’s trustee knowledge and understanding code. 5% of schemes admitted that none of their trustees met these standards. There is therefore a certain reassurance around the professional trustee – if you can be confident that they have the necessary knowledge and experience.
The outgoing Pensions Minister, Baroness Altmann, told delegates at a recent conference that the UK is in the middle of a pensions and retirement revolution with radical reform happening all the way through. Trustees need to prepare themselves for this.
There is a strong case for the regulation of professional trustees although what that looks like is still uncertain. Statistics regarding the compliance of lay trustees with the current knowledge and understanding regime are concerning. Although some level of compulsion may be inevitable to ensure that beneficiaries are properly protected care must be taken not to create a barrier to the invaluable lay trustees.