Matthew Giles looks at how the new standards and accreditation framework will impact professional trustees
With the launch of the professional trustee accreditation framework expected later this year, there is an increasing focus on professional trusteeship. The impact of the new framework will depend upon the extent that it is adopted and enforced. Will it result in improved standards and greater consistency of quality, or bring about a reduction in the number of providers and therefore be anti-competitive?
What is expected?
There are currently several unknowns surrounding the new regime. Although the standards for professional trustees of occupational pension schemes were published by the Professional Trustee Standards Working Group (PTSWG) back in March, they only represent half the story. It is the promised accreditation process that will set out in practical terms how a professional trustee can demonstrate ‘ongoing adoption of and continuing assessment against' the standards. So far, we only have the basic structure of the accreditation framework and are awaiting further details.
Some of the new accreditation requirements will already be familiar. One example is the expectation to pass the PMI Level 3 Award in Pension Trusteeship. This is consistent with The Pensions Regulator's (TPR) Code of Practice No. 7 on TKU, which states that professional trustees should demonstrate they are ‘appropriately qualified'. Another example is the inclusion of a ‘fit and proper' person test for professional trustees. TPR already requires those operating master trusts to meet a similar test. Further, there is already a power in legislation for TPR to prohibit a person from being a trustee if they are not ‘fit and proper'.
Other elements of accreditation will not be so familiar, such as the soft skills test, included to assess skills and behaviors in a pension trustee context. Other requirements include the annual completion of 25 hours of CPD and the submission of two references from ‘reputable figures within the industry'.
Will professional trustees get on board?
Compliance with the new standards and participation in the accreditation process will present an additional cost and time burden. Larger trustee firms will have the infrastructure to respond efficiently and so may embrace the changes. However, for smaller professional trustee operations, including sole traders, the extra cost and time commitment may encourage them to shut-up-shop or necessitate a price increase.
So, to whom do the new standards apply? The standards refer to the definition in TPR's August 2017 ‘Professional trustee description policy'. The description of a professional trustee is broad. It potentially captures individuals who would ordinarily not be considered ‘professional' in their main trustee role (e.g. because they are a scheme member or employed by a sponsoring company) if they also act as trustee on a scheme to which they are not connected by employment or scheme membership. TPR's policy makes it clear that if a trustee is professional on one scheme, they are professional on all schemes. Many trustees who undertake additional trustee roles for charitable or public-spirited reasons may not realise their potential ‘professional' status, let alone that the standards could apply to them. If TPR or the industry would like the standards and accreditation to become mandatory, the first step could be to look again at the definition of professional trustee.
Regulator expectations and involvement
The recent TPR consultation on the future of trusteeship and governance welcomes the PTSWG's standards and accreditation. The consultation reinforces the higher standards expected of professional trustees but also states that ‘accreditation will not affect [TPR's] approach to enforcement action'. It seems that the standards and accreditation process are on TPR's radar, yet it is not clear just how far the regulator will go in endorsing, promoting and enforcing them.
The watchdog states in its recent consultation that given the proportion of schemes to professional trustees, it is not feasible to have a professional trustee on every board. While the regulator expects this to become more realistic in future owing to market consolidation, the potential for decreasing numbers and higher prices of professional trustees may also be relevant to these aims.
While the market is booming for professional trustees, as lay trustees seem less keen on the role and TPR is increasingly using its' power to appoint professionals, the risk profile of being a professional trustee is growing. While helping to ensure greater consistency of standards, this may result in price rises and market contraction. Any price rises would cut across the policy intention, by making professional trustees less viable for small employers and pension schemes.
Matthew Giles is pensions partner at Squire Patton Boggs
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