Pensions regulator backs down on trustee requirements
13 Feb 2020
The Pensions Regulator (TPR) has watered down plans to require pension scheme boards to engage a professional trustee in order to drive up standards, in the light of responses to its consultation on the future of trusteeship and governance
13 Feb 2020
A record 114 written responses were submitted, which the regulator said broadly supported its view of the need for trustees to constantly review and develop their knowledge and skills, and to improve diversity and inclusion on trustee boards.
However, TPR acknowledged that the majority of respondents opposed its proposal to make it mandatory for pension scheme boards to hire a professional trustee, and to consider tightening the governance standards for sole trustees.
On the question of professional trustees, alongside the issue of market capacity, respondents highlighted the additional cost and burden on schemes, the potential to reduce trustee diversity and the fact that the Association of Professional Pension Trustees (APPT) standards have not yet had a chance to bed in. APPT is working on an upcoming industry accreditation framework for professional trustees.
Several respondents also pointed out that TPR can already appoint a professional trustee to schemes (although this can only be done in very specific circumstances). In addition, many smaller schemes, where issues around effective governance and trusteeship can be problematic, would struggle to attract and pay for an accredited professional trustee to sit on their board.
There was similar opposition to plans to strengthen governance requirements for sole trustees, which is an area where APPT is developing an industry code.
The proposals come after a 2019 survey by the regulator found that 99% of smaller pension schemes, with 12 to 99 members, had failed standards of trusteeship and governance.
TPR said it still has concerns about some aspects of sole trusteeship, particularly around how effective some of the models are at dealing with conflicts of interest and ensuring saver engagement.
As such, it intends to commission research on the scale and reach of sole trusteeship in occupational pension schemes to gain a better understanding of the landscape and identify any patterns or trends related to their use.
The TPR stated: ‘We do not currently propose to make changes to the way we regulate schemes that utilise a sole trusteeship model, although that may change in the future if evidence comes to light that there are fundamental problems which need to be addressed. That means that we will continue to scrutinise schemes that use a sole trustee.’
Following the consultation outcome, TPR will now review and update its trustee knowledge and understanding code of practice and review the trustee toolkit to make its expectations clearer and to drive up standards of trusteeship.
This is likely to include adopting a ‘tiered approach’ so TPR is clearer about what ‘level’ it expects lay trustees, chairs and professional trustees to acquire knowledge and understanding as a baseline level of competence.
Once the new standards are in place, TPR plans to run a regulatory initiative to test levels of trustee knowledge and understanding, and to consider appropriate action where they fall below expectations.
It will also set up and lead an industry working group to find ways of supporting schemes to take steps to improve trustee diversity.
David Fairs, executive director of policy at TPR, said: ‘It is clear there is strong support from the industry for a collaborative approach to improving governance standards to protect savers and member outcomes.
‘The route to achieving this goal is driving up standards across all schemes, but particularly in small and micro schemes that tend to have poor governance; we will encourage consolidation where trustees are unwilling or unable to improve governance to the required standards.
‘Vital to this will be boosting knowledge and understanding and ensuring trustee boards have a diverse make up to make the best decisions for members.’
The consultation also generated extensive views on consolidation in the defined contribution (DC) market. TPR said it will continue to monitor DC consolidation activity and work with both industry and the Department for Work and Pensions (DWP) to find solutions to overcome barriers to consolidation.
Consultation response: Future of trusteeship and governance