Torsten Bell: Our approach to overseeing and administering such large pension schemes needs to keep pace with a fast-evolving pensions system.
The government will work with the Pensions Regulator (TPR) and industry to develop a new trustee competency framework, the Department for Work and Pensions (DWP) has announced.
The government's response to its trusteeship consultation said the framework would set out the skills trustees need – including artificial intelligence, cyber security and the governance of very large schemes – so that trustees have a "clear benchmark to develop against".
The DWP said the changes would "empower" trustees to act effectively and independently on behalf of members as their responsibilities grow – enabling them to focus on delivering better retirement outcomes.
The response also said that master trusts, which it said had grown alongside auto-enrolment and were expected to make up most future megafunds, would be subject to a strengthened regime. Under the proposed changes, TPR will be able to step in before a breach of authorisation criteria take place, rather than after it has happened.
In addition, the government said it would also work with TPR to better understand the professional trustee market, while also engaging consumer groups and industry to develop governance arrangements that provide effective member representation and avoid conflicts of interest, maximising trust and confidence in the system.
And it said it would also require pension administration providers to register with TPR and meet mandatory minimum standards focused on data quality – a move it said would give trustees a firmer foundation to work from.
The DWP said these reforms will be taken forward at "the next legislative opportunity", with implementation "phased and proportionate to give the sector time to prepare".
Pension minister Torsten Bell said: "Bigger pension schemes will help deliver better outcomes for savers. Our approach to overseeing and administering such large pension schemes needs to keep pace with a fast-evolving pensions system. Members must be able to trust the people and systems managing their money.
"Thanks to the industry's engagement, we can act now. Behind every pension pot is a person planning their future, and we want them to feel confident it is in safe hands."
Raising standards
Pensions Management Institute chief strategy officer Helen Forrest Hall welcomed the government's continued commitment to strengthening governance across the pensions sector through stronger master trust authorisation and a practical framework of new minimum standards for administration.
She said: "Pensions are getting bigger, more complex and more important than ever. These reforms are a chance to raise standards, strengthen governance and make sure millions of savers get the outcomes they deserve."
Pensions UK chief policy officer Zoe Alexander agreed. She said: "The pension landscape is changing, and trustee boards need to evolve to reflect that. Trustees of megafunds need the right support and member input to govern schemes of growing and systemic economic significance.
"The pensions industry recognises where change is needed and we welcome the government's focus on collective board capability, stronger administration and raising standards without unnecessary prescription."
Ensuring a member voice
The Association of Member Nominated Trustees (AMNT) welcomed the commitment to a new trustee competency framework and to stronger oversight of master trusts and pension administrators – but said the framework should measure the competence of the board as a whole.
The AMNT said it believed boards worked best when technical expertise sits alongside the independent judgement and challenge brought by member-nominated trustees (MNTs) – urging that competency standards must not become a barrier that closes the door to appropriately trained MNTs.
AMNT co-chair John Flynn said: "Members want people like themselves, who understands their circumstances, around the boardroom table.
"As schemes grow larger and more distant from the people they serve, the member voice matters more than ever. A competency framework should raise the standard of the whole board, with the right training and support, rather than narrow who can serve on it. The member voice must be heard on every scheme and not just members panels.
"We look forward to working with DWP and the Pensions Regulator to make sure the new regime for megafunds puts members and their voice at its heart."
The role for professional trustees
The Association of Professional Pension Trustees (APPT) said the government's response to its trusteeship and governance consultation broadly recognises that the current UK pension trusteeship system has several features that work well and continue to support strong member outcomes – a key strength being the flexibility it offers in governance structures.
It said schemes can adopt governance arrangements that best fit their size, complexity and membership profile, whether that is a traditional trustee board or, where appropriate, a professional corporate sole trustee (PCST) model – an adaptability that allowed governance to evolve as schemes matured or faced new strategic challenges.
APPT co-chair Julia Yates said: "We welcome the government's recognition of the strengths of the existing system and will work with DWP and TPR to ensure that any enhancements build on established good practice, are workable and genuinely beneficial to members."
APPT co-chair Christopher Wheeler added: "Trustee commitment and accountability also remain central to the system's success. Trustees' fiduciary duties, alongside their wider statutory and regulatory responsibilities, provide a clear framework for ensuring that decisions are made in members' best interests. Maintaining trustee independence and effectively identifying and managing actual or perceived conflicts of interest are also essential to sustaining confidence in the system."
Law Debenture agreed – urging policymakers to preserve the plurality of governance models it said had "served UK occupational pensions well for more than two decades".
LawDeb trustee director and head of corporate sole trustee Scott Pinder said: "There should be no argument about the destination. We all want pension schemes to have robust governance, strong challenge and decisions firmly focused on members. The question is whether prescribing how schemes get there actually improves outcomes.
"One of the great strengths of UK occupational pensions over the last 20 years has been its plurality. Member and employer nominated trustees, independent trustees, professional trustees, master trusts, corporate sole trustees and now consolidators all have an important part to play. Different models work for different schemes and circumstances.
"Diversity of thought matters enormously. But diversity of thought and effective challenge do not automatically follow from the number of people sitting around a board table. Equally, professional corporate sole trusteeship should never mean decision-making resting unchecked with a single individual. The best models build in peer review, dual controls, escalation and genuine challenge, and connection with members such as using employer forums and consultative committees.
"If government believes additional safeguards are required around moves to PCST, we should engage positively with that. But any new requirements need to address a clearly identified governance risk and produce better outcomes, rather than simply making one model harder to adopt or attempting to force schemes into pre-determined boxes. They also need to consider how to manage any conflicts of interest of those from whom any agreement is sought.
"The same principle should apply to megafunds and other emerging consolidated structures. Scale may justify greater scrutiny and stronger assurance, but board size should not become a proxy for effective governance. What ultimately matters is capability, independence, member voice, resilience and the quality of the decisions being made."
