Trustees must design and operate member-nominated trustee (MNT) arrangements which are appropriate for their scheme and meet The Pensions Regulator’s (TPR) principles of fairness, proportionality and transparency. Many boards diligently designed arrangements in or around 2006 but have made relatively minimal changes since then.
As boards are also required to review their arrangements both periodically and after a material change, for many schemes it's time for a redesign.
A redesign also presents a valuable opportunity to refine and modernise the selection process and ultimately improve the effectiveness of the trustee board taking into account both the collective industry learnings of the past 15 years and TPR's latest expectations (as set out in its draft code of practice).
So what should trustees think about?
Reflecting changes
Big changes to the scheme must be reflected in the MNT arrangements. If the scheme has closed to future accrual, is it now time to include deferred members in the process? If there has been a large merger, is a new member constituency needed?
Moving with the times
Schemes which have previously relied on postal applications may decide it's time get online to make it quicker and easier for members to apply to be an MNT. If MNTs are selected by ballot, allowing online/email voting could be a potential game changer in relation to the level of member participation.
Boosting the number of applications
If schemes have struggled to get applicants, their process could be imposing unnecessary barriers. Could reducing or removing requirements for applicants to get a minimum number of sponsors boost applications?
Getting informed applicants
As being a trustee is an increasingly demanding role, it's vital to give sufficient information up-front about what the job requires so individuals make an informed decision about whether to apply. However, it's also important to highlight the available training, support and access to advice, to strike a balance and not put good candidates off coming forward.
Making the right choice
Trustees that use, or are thinking of introducing a selection panel, need a structured and transparent process to assess and compare the applicants. This should include a documented assessment criteria and standardised interview questions that are tailored for the scheme. Asking some more qualitative questions in the application form could also help boards identify which candidates to interview as well as highlighting skills or areas of experience which can be further explored during an interview.
Improving diversity and mix of skills
Appointing new MNTs can be a great opportunity to increase a board's diversity and broaden or balance its collective skills which can lead to better trustee decisions. Looking at how you communicate with members about the MNT role specifically from a diversity and inclusion (D&I) angle could help identify changes which might encourage applicants with a wider range of backgrounds and perspectives.
Succession planning
The regulator's draft code reminds trustees of the importance of succession planning to avoid losing vital knowledge and experience at a key moment in time. To help reduce the risks, trustees may want to consider:
- staggering terms of office (so MNTs don't all stand down at the same time), and/or
- setting the length of an MNT's term of office to align to a particular planned activity or project (for example, to allow an MNT to experience one valuation cycle and then play a more material role in the next. Or to see a buyout and wind-up through from beginning to completion.)
Getting employer support
Getting the scheme's sponsoring employer involved in the recruitment of MNTs can reassure individuals that they will get the support they need to take on the new role and will be recognised for their work as a trustee. This should help more applicants feel confident to come forward in the first place and ensure the selected MNT can dedicate the necessary time and energy throughout their term of office.
Trustee effectiveness is already a hot topic and it is only likely to move further into the spotlight with the introduction of TPR's new code of practice. Many boards will inevitably be investing considerable time and effort into improving their governance and effectiveness in order to keep pace with the continually rising expectations on trustees. Making time for a proper review and redesign of their MNT arrangements can help ensure they are working to support and enhance those efforts (rather than risking potentially undermining them).
Naomi Brown is senior counsel at Sackers
