Consultation on the future of Trusteeship and Governance

Consultation on the future of Trusteeship and Governance

Shona Harvie, Partner, Pension Funds
Consultation on the future of Trusteeship and Governance

The Pensions Regulator (the Regulator) has launched a consultation “Future of trusteeship and governance”. It poses a number of questions on a range of issues including:

  • Should a legal requirement be brought in for Trustees to meet minimum standards of knowledge, understanding and ongoing learning?
  • Are sole Trustees on a pensions’ board able to run pension schemes appropriately?
  • Should there be an accredited professional Trustee on every board?
  • How can diversity on pension scheme boards be improved?
  • How can barriers to consolidation be removed?

The Regulator aims to reduce the number of poorly governed pension schemes and develop how the Trustee model can be made more effective. The Regulator’s research indicates there is more to be done to improve scheme governance, particularly in small schemes (12 to 99 members) and micro schemes (less than 12 members), where Trustees can be less engaged compared with those of bigger schemes.

The consultation considers three key areas.

Trustee knowledge and understanding, skills and ongoing learning and development

The consultation asks whether there should there be a legislative change for Trustees to demonstrate how they have acquired a minimum level of knowledge and understanding, such as through training or qualification, and also whether a minimum level of ongoing learning for all trustees should be introduced, for example through CPD-type training.

Comment: Trustee board are increasingly formalising trustee training to ensure they have the appropriate skills. The Regulator’s Trustee Toolkit is often completed as part of a training programme. The Pensions Management Institute has recently developed a Trustee qualification, and many existing industry conferences already offer CPD type training and advisors offer training to Trustee boards.

Scheme governance structures for effective decision-making

The Regulator raises concerns over the structure of Trustee boards, in particular, sole Trustee boards and how potential conflicts of interest are managed. The consultation asks whether there should there be a requirement to report to the Regulator on what actions schemes are taking to ensure diversity on their boards, to ensure they can to demonstrate that they have the right mix of skills, knowledge and understanding for running the scheme.

Although currently not be feasible, given the number of occupational pension schemes and the number of professional Trustees in the sector, the Regulator does aspire to see an accredited professional Trustee on every board in the future.

Comment: Trustees come from a wide range of backgrounds, some being professional Trustees, although their backgrounds are diverse. Other Trustees are not pension specialists, but may be nominated to represent members, or may be employer representatives with other day to day employment responsibilities. Trustee boards should consider the different roles of Trustees and the importance of diversity on boards. Some schemes are moving to sole Trusteeship as it becomes increasingly difficult to find people willing to become Trustees. Sole Trustees need to consider how their governance arrangements ensure there is sufficient challenge and documentation of decisions.

Driving defined contribution scheme consolidation

The Regulator’s vision is to have fewer, better governed schemes. Schemes that are unable to meet the standards of Trusteeship and governance that the Regulator expects will need to improve, face enforcement action or be actively encouraged to wind up. The Regulator is looking at how to remove barriers to winding up, for example for schemes that offer guarantees.

It is anticipated that the route many of these schemes may take is to consolidate into a master trust, where master trust authorisation provides that higher standards of governance are being maintained.

The consultation acknowledges that some of the principles of consolidation apply to defined benefit, as well as defined contribution schemes. However, it does not specifically consider defined benefit consolidation or ‘superfunds’, as these are currently being considered for legislation by the DWP.

Comment: The increasing regulation of defined contribution schemes is already resulting in many arrangements moving to master trusts.

Next steps

As part of their new regulatory regime in the autumn of 2018, the Regulator launched one-to-one supervision for 25 of the biggest pension schemes, and the number of schemes subject to supervision will grow in the next year or so. In addition, all schemes can expect a higher level of regulated activity more generally, through proactive contact such as through calls, emails and letters. The Regulator will analyse responses, and, if there are concerns, schemes and sponsoring employers can expect further contact. Undoubtedly this will include areas covered by this consultation if implemented.

Responses to the consultation must be submitted by 24 September 2019. The Regulator also plans to hold events during the consultation period to discuss the issues highlighted in more detail. Full details on the consolidation can be found here.

If you would like advice on your scheme’s governance issues, please contact your usual Crowe contact.

Contact us

Shona Harvie
Shona Harvie
Partner, Pension Funds Group