Regulations rule?

A FEW weeks ago, Baker Tilly, in association with Professional Pensions, undertook to carry out three waves of research on pension scheme trustees concerning three major themes related to scheme management. The first was the current and developing state of scheme governance.

Everyone in the industry is aware of the amount of change the sector has undergone, and the further changes still to come through, but to what extent and at what speed is the change affecting trustee behaviour or trustee attitudes?

Is the industry gradually moving forward at a slow pace with timely reform or is it like a confused stampede with the experts waiting for the dust to settle?

The results of the first wave of research have come through. Overall, they tell us trustees appreciate the importance of regulation, they also are fully aware of the increasing number of responsibilities they bear. Unfortu-nately, they are still either about to, or in the process of, doing anything about it.

The survey looked at a range of issues related to governance and asked trustees how things have changed over the past year. The amount of regulation, the first issue we asked about, is the most obvious but it was interesting to see how much opinion had shifted in a year.

Of the 18pc who said there was scope for more regulation last year, the majority have changed their position – only 6pc now feel there is scope for more regulation. The only surprise here is that the figure was as high as 6pc after the significant amount of recent changes.

Another interesting finding to come out was that 65pc of all schemes are considering evaluating the performance of the trustee board. Given that the majority of schemes participating in the study were smaller schemes who usually tend to see performance evaluation as unnecessary, 65pc is a considerably large figure.

A lot of people wondered about the growing reliance on independent professional trustees (IPT). It would be fair to expect that the last 12 months would have seen a sharp rise in the number of trustee boards appointing an IPT as trustees look for administrative and strategic help – this was almost the case; 42pc of schemes employed an IPT last year, now 47pc do.

The interesting finding is that the number of schemes that are completely reliant on one or more IPT has jumped from 12pc of all schemes to 29pc. Independent trustees therefore, have seen a slight increase in their usage over the past year but a great leap in the extent to which trustees rely on them. Could this be evidence of the TKU responsibilities scaring the well-meaning amateur trustee away?

The thrust of the research was to establish how governance was dealt with in schemes. It still seems a work in progress as 56pc of schemes have yet to set formal policies. Increasing legislation has changed some mindsets as 33pc now believe the board runs well without setting formal procedures, 5pc fewer than last year. However, we would hope to see a much more dramatic drop in this number next year.

The one finding that stands out is the fact that only 10pc of schemes believe a comprehensive risk review is necessary to focus on key issues.

A vast majority of schemes, 83pc, have addressed only key risks and ways to mitigate them. The question trustees will have to put to their boards will be “how do we know what the key risks are if we haven’t done a risk review?” Many trustees may have understandably concentrated on investment risk but most schemes will have other key issues to consider.

The next part of the research will look into the issue of developing a framework for educating trustees and will be followed by a focus on how boards can attract people into becoming trustees.

How the details of last week’s White Paper will affect the industry is yet unknown, let us be hopeful though, that the raft of changes will gradually improve the way the industry works without the difficulties of another stampede of legislation.

Ian Bell is head of the pensions group at Baker Tilly