The Irish pensions industry is looking closely at trustee qualifications. Richard Butcher thinks we should follow its lead.
I like a pint of Guinness and the best pint is one served in a lively Dublin City bar with a guitar being strummed in the background. It's even better if the Champions League is on a muted telly above the bar. The dark stuff, richly mysterious, is dealt with efficiently and with pleasure.
I had a couple of pints in just that way a few weeks ago having earlier met with the Pension Authority (TPA) – the Irish equivalent of The Pension Regulator. They, it seems, are grappling with their own dark stuff – although it's proving a much less pleasurable and efficient process.
Private pension coverage in Eire isn't looking good. Although around 50% of workers have a workplace pension, this falls dramatically to around 30% if you exclude private sector workers. As a consequence, the government has been considering introducing auto-enrolment (AE). Those who are far better informed than I tell me that the final decision on AE, delayed by the financial crisis, will be taken after the election that looks likely to take place in February.
The delay in introducing AE has, however, allowed TPA to get onto the front foot with the quality of defined contribution (DC) provision. It has consulted on DC quality standards and is about ready to publish its first codes of governance for DC schemes.
Despite this, it is still grappling with some thorny issues. One such is in relation to trustee qualifications.
First some numbers. As at July 2013 the Irish had 145,331 DC trust-based schemes covering 866,405 members. Of this total 52,389 schemes had only one member (there's a tax advantage) and 78,854 were "frozen". There were, however, 14,088 active schemes with more than one member, covering a total population of 750,515 members (an average of 53 members per scheme). Each of the 145k schemes has trustees. That's a huge population of trustees.
TPA is concerned that this can't be efficient. Average costs are high and average membership too low. One tool TPA thinks it can use to improve this is to ratchet up the quality of trusteeship.
Degree in trusteeship
One of the proposals is that all trustees should be compelled (albeit with some grandfathering and perhaps exemption) to sit and pass a yet to be designed but specific degree level qualification – a sort of bachelor's degree in trusteeship.
Perhaps not surprisingly TPA is meeting much of the same opposition as has been expressed to similar ideas over here, and this boils down to two arguments. There are those who claim they know everything already and shouldn't need to demonstrate their ability by exam, and there are many who claim that lay trustees will resign en masse.
Personally, I have some sympathy with the second of these. Lay trustees bring a lot to the trustee table: a different view and an intimate connection between governance and the membership experience. The answer, though, is not to try to carve them out from having to have knowledge, but instead to be able to distinguish in law between them and the professionals – paving the way for having different legal liabilities.
I have no sympathy, however, for the first of these. Trustees look after millions, even billions, of pounds of assets on behalf of other people. No one, not even the best and most experienced trustee, can know it all. On top of that, an exam demonstrates to members that you have knowledge – this serves to reassure.
The Irish are grappling bravely with this dark and swirling problem. So far, we have ignored it. It is time, however, for us to follow them. Let's insist trustees are properly qualified to do the job.
Richard Butcher is managing director of Pitmans Trustees
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