Getting the knowledge

NEW legal requirements for trustees’ knowledge of pension law and trust law, and understanding of their own schemes, came into force on April 6.

The Pensions Regulator is providing a basic level of training for trustees, but expects commercial providers to build on it.
There is still work to be done on helping trustees demonstrate they meet the requirements, and a new examination is being developed.

The Pensions Act 2004 brought in the new requirements on “trustees’ knowledge and understanding” which are generally abbreviated to the unlovely acronym TKU.

There’s also a requirement for “conversance” with the member’s own scheme, though how this archaic word differs from “a working knowledge” is hard to say.

The Occupational Pension Schemes (Trustees’ Knowledge and Understanding) Regulations 2006 were laid before parliament in March, and the code of guidance is available at The Pensions Regulator’s website - www.thepensionsregulator.gov.uk

The original idea was that trustees who were already in post at April 6 would have no period of grace to get up to speed with their knowledge and understanding, while newly-appointed trustees in the future would have six months.
In the final version of the code of guidance, TPR is more merciful and allows existing trustees a grace period as well, recognising that many existing trustees have not had the opportunity for learning, while many others will have had only induction training, or become out-of-date in the light of recent legislation and other changes.

Independent trustees, and those who hold themselves out as having expertise on particular aspects of trusteeship do not have any leeway, however.

Trustees of small self-administered schemes, with fewer than 12 members all of whom are trustees, are exempt from the requirement to know what they are doing so long as either all decisions are unanimous or there is an independent trustee sitting with them to put them right when they go adrift.

Presumably, the idea behind this exemption is that these schemes are mainly set up for executives in smaller companies, so it is the trustees’ own pension funds that they are hazarding.

If lack of knowledge leads them to do something silly with the cash, so be it.

The standard set by the code is that while trustees do not need to be experts, they do need to be able to “understand fully any advice they are given, to challenge that advice if it seems sensible to do so, and to enter fully into all the decision-making processes”.

There is some recognition that schemes are different, and so trustees’ own needs for knowledge and understanding differ.
This is also true of the requirements for understanding one’s own scheme documents - trustees are not expected to know the details of the wind-up rule, for example, unless the scheme is actually being wound up.

To help trustees comply with the new rules, The Pensions Regulator has launched an “e-learning” programme, available on the internet on www.trusteetoolkit.com.

This is on its way to completion, with two modules published and a third on its way, and the rest due to be written over the summer.

They are, TPR chairman David Norgrove told the House of Commons select committee in March, “extremely well-done and quite entertaining, which is unexpected”.

The programme is set at quite a basic level, he explained, because TPR recognised “that there was a gap in the market which the market itself was unlikely to fulfil” for such basic training.

So TPR plans to provide that, while leaving commercial providers to build on it.
Others are indeed moving into the market, with the National Association of Pension Funds for example setting up on online Trustee Development Programme, expected to take 40 hours spread over 10 units.

“We have had over 200 working on the programme since we introduced it just over 12 months ago with 20pc taking the exam at the end,” training and development manager Frances Corbett explains.

“The first revision to the programme took place in October. The revisions not only updated the material but also introduced cross-referencing to The Pensions Regulator’s indicative syllabus so that trustees can see where their learning supports the items included in indicative syllabus.”

In the commercial world, actuarial consultant Lane Clark & Peacock has set up a trustee knowledge advisory service.
One new product is an online training needs analysis - a multiple choice questionnaire based on TPR’s own syllabus, with written feedback on learning gaps identified.

At a higher level, two specialist courses have been launched, one on assessing the employer’s covenant and formulating plans to recover a deficit, and the other on internal controls.

“In addition, there has been quite a demand for scheme-specific training to cover the conversance requirements,” says partner Bob Scott. “We provide those both to existing clients where of course we’ll already be familiar with the documents, and to non-clients where we will take away copies of the documents and study them before putting on the course.”

Perhaps rather more problematic is how trustees are to demonstrate that they have reached the requisite standard. TPR originally proposed, in its draft code of guidance last year, that there should be a declaration about trustees’ training to be included in the scheme annual return, but this has been dropped for the moment.

The code, TPR now says,”is not the place to set out this form of regulatory policy,” and so there will be more work on what is practical.
The code does say, though, that it is “good practice” for trustees to keep records of what training they do individually and as a group.
It is also taken for granted that the minutes of trustee meetings are full enough to record the elements of any discussion, so that they will show that trustees have fully entered into the decision-making process.

An exam-based approach might seem the answer, but the law does not require anyone to take a qualification and the code says that “there will certainly be no pressure from the regulator to do so”.
In TPR’s own basic “trustee toolkit” people can work through the modules at their own speed, doing the test questions as often as need be.

After successful completion of the programme, TPR will send out a certificate.

The Pensions Management Institute is planning to replace the existing Trustee Certificate of Pensions Knowledge, with a new Award in Pension Trusteeship.

This will be much more closely tied to TPR’s syllabus, and also to the world of formal qualifications and lifelong learning credits.

It is to be part of the National Framework of Qualifications, which means that the PMI must seek approval from the QCA Qualifications & Curriculum Authority.

“What we’ve developed is in fact two qualifications, one DC only version and one DB/DC version, and we’ve submitted both for approval,” head of education Gillian King explains.

The go-ahead is expected any day, and the first examinations will be available in the summer.

For the DC version, participants will have an hour to answer 60 questions, while the DB/DC version takes a formidable one-and-a-half hours and involves 90 questions.