Kim Kaveh asks if trustees should be subject to maximum term limits for a particular scheme, after a PP poll showed mixed views on the matter.
In the world of UK pensions, trustees have a very important role to play - ensuring that the pension scheme is run properly and that members' benefits are secure. For this reason, it is essential that trustee boards have the right people, and a strong chair of trustees to ensure the scheme is well governed and members' interests are protected.
Current UK law says that trustees are not generally subject to maximum term limits, apart from in commercial defined contribution (DC) master trusts, in which there is a 10-year tenure restriction. But would a term limit - which would see all trustees being replaced after a certain period - lead to better member outcomes?
Indeed, there are compelling arguments on both sides. In a Pensions Buzz survey of 121 respondents last month, the industry was split on this question.
Half said there should not be maximum term limits - with some respondents saying it is already difficult enough finding trustees in the first place and some others noting the value that experience in this area brings.
Speaking to PP separately on the matter, Association of Member Nominated Trustees co-chairman David Weeks says he has "severe reservations" about saying trustees should have maximum term limits, as it would be an "unfortunate move" to kick people out that are "doing good".
PAN Governance managing director Steve Delo agrees, adding, if anything, "the industry challenge is about holding onto good trustees for long enough".
He adds: "For typical defined benefit (or single trust DC) situations, it is hard to get good trustees, and it takes a long time for lay trustees to build up the knowledge and skills.
"I think any perceived conflicts or issues with a trustee being around for years is outweighed by the great benefits of them truly understanding the scheme, the technical issues, the regulatory environment, the issues and, ultimately, the mission.
"I think far more critical issues than term of office are competence, the time to do the job and ability to properly deal with conflicts."
However, 48% of respondents to PP's Pensions Buzz poll said trustees should be subject to maximum term limits.
Why? According to one Buzz pundit, this helps to avoid "herd mentality" and "stale thinking". One responded noted it would ensure trustees don't get "too comfortable". Another said: "We all run the danger of group think and take the easy life. A regular churn of trustees is a good idea as this will keep the trustees on their toes. However there should be a balance between new and old blood so knowledge and experience don't disappear."
Around two-thirds of respondents who thought there should be a time limit, said this should apply to all trustees - just over a fifth said a term limit should apply to just professional trustees, while around 10% said it should apply to just lay trustees.
Of those who said just lay trustees, 60% said the maximum term limit should be fewer than five years, while 40% said five to nine years. For the respondents that said just professional trustees, 8% said fewer than five years; 67% said five to nine years; 8% said 10 to 14 years, and nearly a fifth (17%) said it should be 15 years or more.
Meanwhile, for the pundits that said all trustees should be subject to maximum term limits, an overwhelming majority (74%) said five to nine years, under a quarter said 10 to 14 years, and just 3% said fewer than five years. No respondents said 15 years or more in this instance.
However, Delo and Weeks are in agreement that that time limits - if they apply at all - should not be based on the type of trustee.
Delo adds: "It is not about an arbitrary time period. Yes - a long standing professional trustee can become powerful on a scheme and there should be checks to ensure the board remains effective as a whole and not dominated by such a person."
He further notes that if a term limit has to be set - and it is, say, 15 years - what's the point of it? "An incompetent professional trustee should not be allowed to hang around for 15 years - so it comes back to proper ongoing evaluation and assessment of board effectiveness."
Ongoing evaluation could involve trustee review periods after a certain amount of time. Some Pensions Buzz respondents agreed this should be the case. One respondent said this would mean "good trustees could be retained beyond a fixed end date".
Weeks agrees, saying that "it would not be a good idea to have someone elected or selected in post without some sort of formal review period", and that the period should be between three to five years.
It is clear that there are mixed views on whether trustees should be subject to a maximum term limit. However, it seems the most viable option is to have set review periods. How long a trustee has been on a board does not determine how good they are in the role, or their ability to help improve member outcomes. Losing the ones who make positive contributions would be a shame - whether they are lay, or professional trustees.
PMI president Lesley Alexander and the institute's immediate past-president Lesley Carline talk about the challenges of Covid-19 and the opportunities and challenges the industry faces in the future.
The Pensions Administration Standards Association (PASA) has announced global consultant Deloitte as its expert knowledge provider for data.
This week’s top stories included further support for an overhaul of the pension tax regime, while the Treasury confirmed the Retail Prices Index will be reformed by 2030.
XPS Pensions posted a 9% increase in revenues during the six months to 30 September – a rise driven by a number of large client wins.
Here they are - the winners of the 3rd annual Women in Pensions Awards...