The Pensions Regulator has released figures suggesting that non-professional pension trustees are increasingly uncomfortable with their responsibilities and are losing confidence in their ability to fulfil their role effectively.
The figures showed that just 56% of trustees were able to describe their understanding of their role as “very good”, a drop of 12% from the previous year. There was also a 5% decline in the number of trustees who knew how their scheme’s assets were invested.
The Pensions Regulator Code of Practice 7 – Trustee Knowledge and Understanding – helps equip trustees with the necessary skills but it has been suggested that this is a long term solution with the skills gap having to be closed more urgently.
It seems inevitable therefore that schemes will invest in a professional, independent trustee to provide expert support and look to close this gap immediately. There is often reluctance to incur additional costs, particularly when schemes are in deficit, but such costs should be considered in the context of the overall size of assets and liabilities. Inappropriate, ill informed investment decisions could potentially cost a scheme very significant sums. In comparison, the annual cost of an independent trustee is a small price to pay. Professional trustees are experienced, technically competent pensions professionals. As well as providing guidance on the big decisions, they can, where appropriate, challenge constructively the advice received from professional advisers. Most significantly, they are independent from the company so are not conflicted in the decision making process.
We have commented in earlier posts on the role of a lay trustee and who in their right mind would want the job, see our previous posts, “What scares Johnny Knoxville?” and “Individual pension scheme trustee – think again!!“, but, if the desire is there, it is right that member and company interests are represented on the trustee board. Indeed, legislation attempts to compel a minimum level of Member Nominated Trustees. But being a trustee no longer means a half day off work, a free lunch and agreeing to whatever your consultant told you. In the current economic climate conflicts abound and there are no right and wrong answers. Professional advice needs to be properly evaluated and considered. Alongside there are an increasing number of regulatory compliance requirements.
Overarching trust law has worked well for pension schemes for over half a century and I don’t think it’s fundamentally broken but undoubtedly there is a need for greater understanding and competency for trustees. To a degree the Regulator has recognised this and has gone some way to improve things through its TKU Code of Practice, Toolkit etc. However, this falls short of imposing competency tests and the need for a recognised qualification to enable individual to act as a trustee.
The role of the professional trustee (such as Dalriada Trustees) will, therefore, become increasingly important and, arguably, their mandatory appointment might be seen as important as member representation.