Peter Askins looks at how trusteeship could evolve in the coming years.
The recent comments of the The Pensiosn Regulator's new chief executive on the future of trusteeship has encouraged a debate about the future of pension fund trusteeship. Let me declare an interest at this point – in my time at DWP I was the official responsible for member-nominated trustee (MNT) regulation and trustee knowledge and understanding.
At the time the debate was about having 50:50 member and employee-nominated trustees and introducing a single mandatory MNT selection process. I opposed both of these on the grounds that one-size-fits-all solutions did not fit with the complex nature of defined benefit schemes – ministers and Parliament agreed with my assessment.
On calls for mandatory trustee training, there is already a mandatory requirement for trustees to undertake training. However, there is no sanction for failing to do so. This was a deliberate policy. At the time there were concerns about the increasing numbers of trustee vacancies on boards, and threatening people with sanctions for not undertaking training was considered counter productive.
Given that in most schemes it is the sponsor who has the power to appoint an independent or professional trustee that is their prerogative, but considered from both the beneficiaries, and dare I say, the Regulator's perspective they should be able to demonstrate they have the knowledge and competencies to do the job they are paid for.
It may well be that the time has come to reappraise the sanctions issue. One option would be to set a minimum entry level – let's assume the regulator's Trustee Toolkit – and to introduce a sanction on the scheme sponsor, along the line of tax penalties, for an escalating daily penalty for each day over the six-month limit. A corollary of that could be that no one could serve as chairman of a board until reaching entry level qualification.
On the professional trustee question, and here again I declare an interest, there are distinctions to be made between professional trustees and independent. As a member of the Association of Professional Pension Trustees (APPT) I am one of around 150 professional and independent trustees who, as well as fulfilling conditions of membership, have to fulfil a rigorous ongoing CPD requirement. Of the thousands of individuals who set themselves up as independent trustees, only a tiny number subject themselves to any sort of independent CPD process.
Independent and professional trustees
You may have noticed that I make a distinction between 'independent' trustees and 'professional' trustees. The former though undoubtedly independent may not be 'pensions' experts. Alternatively they may be members of the scheme where they act as trustee and have held managerial roles prior to their retirement. This brings inherent conflict issues for the scheme and sponsor.
The 'professional trustee' can be characterised as holding multiple appointments and undertaking trustee work as a substantial element of their working life. The best of these do so as part of a recognised corporate arrangement providing proper governance, professional support and PI cover.
I am familiar with the argument that some sponsors prefer to have an independent trustee, as defined above, rather than a professional. Given that in most schemes it is the sponsor who has the power to appoint an independent or professional trustee, that is their prerogative, but considered from both the beneficiaries, and dare I say, the regulator's perspective they should be able to demonstrate they have the knowledge and competencies to do the job they are paid for.
So what is the role of the trustee in the 21st Century? For the lay trustee my view is the same as that of Alan Pickering: they bring common sense and knowledge of the scheme and sponsor. With the advice and guidance of professional advisers they are perfectly capable of governing their schemes through all the normal processes and governance.
However, with the increasing complexity of regulation and governance or where there is a particular issue outside the lay trustees' competence or experience – for instance complex investment, covenant or funding issues – there is a role for the professional trustee to bring together the knowledge needed to reach an appropriate outcome.
Peter Askins is director at Independent Trustee Services
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