A Trustee fit for the 21st Century

28 / 05 / 2019

Background

In 2016 the Pensions Regulator (TPR) carried out extensive research which identified that many schemes were not being run to standards expected by TPR. Off the back of these findings TPR launched an education programme which sought to combat poor governance and raise standards across all types of pension schemes no matter how big or small.

TPR’s “21st Century Trusteeship” programme doesn’t necessarily bring anything new to the table in terms of what constitutes good governance. TPR is not creating new or higher standards of governance for those running schemes but rather it is seeking to clarify exactly what ‘good’ governance should look like. Legislation, guidance and of-course the trustee training tool-kit already exists for many governance areas expected by TPR. This programme seeks to bring things together in one place.

Importantly TPR now sets out in greater detail what action it will take in response to breaches of these standards and from our own experience, TPR is certainly living up to its promise of issuing more fines, naming and shaming those trustee boards who fall short of expected standards and in some instances have removed those trustees who are not up to the job. For instance, in the last week, the pension trustees of Dunnes Stores in Northern Ireland have been stopped from running its defined contribution scheme by TPR, following “a catalogue of governance failures”.

21st Century Trusteeship

TPR has set out five key areas requiring attention with a further ten sub-categories sitting below these (https://www.thepensionsregulator.gov.uk/en/trustees/21st-century-trusteeship).

Some of the key messages are set out below:

1.         Governance, roles and strategy

  • Get back to basics. Trustees need to make sure they have up-to-date information about the scheme. For instance, understand when the scheme PPF levy is to be paid and complete the scheme return on time;
  • TPR recognises that running a pension scheme can be complex and challenging. Good governance is therefore key to helping trustees overcome these challenges so that they can deliver the best to the membership;
  • Having people, delegation structures and processes in place tailored to the schemes’ needs (proportionate to risk and complexity) will help trustees make decisions effectively, manage risks as well as helping them seize opportunities that will facilitate long-term objectives; and
  • TPR already takes action against breaches of the basics and will increasingly focus on schemes which have wider governance issues.

2.            Training, skills and advisers

  • Trustees are legally required to have relevant knowledge and understanding of pension and trust law and key scheme documents like the trust deed and rules and statement of investment principles;
  • A 21st century trustee should have the knowledge and understanding to perform his or her role within six months of their appointment;
  • Trustee boards should identify its strengths, weaknesses and any gaps in knowledge and understanding by carrying out individual trustee evaluations. This will inform training needs;
  • Performance and effectiveness of the board annually and refer to the objectives in the trustee board’s business plan;
  • Select the right advisers to provide advice and manage certain aspects of the scheme – this is a vital part of governance; and
  • Retain sufficient oversight of the tasks that are delegated to others and regularly review and manage their performance.

3.         Risk and conflict of interest

  • Trustees are required to create a plan to identify, document, evaluate and manage risks. This risk framework should be reviewed at least annually;
  • Trustees must make sure they have a conflicts of interest policy in place to help identify, manage and avoid conflicts for trustees, employers, advisers and service providers;
  • Trustees to make sure they are satisfied with their advisers’ and service providers’ conflicts policies; and
  • Make sure they are aware of the services the providers or advisers supply to the employer, and manage any potential conflicts of interest.

4.         Meetings and decision making

  • The trustee chair should provide effective leadership, demonstrate decision-making skills at meetings, and encourage open and constructive debate;
  • Trustees should arrive fully briefed on the agenda (circulated at least two weeks before the meeting) and prepared to discuss each item; and
  • Trustee boards should meet often enough to maintain effective oversight and control, which in most cases will be at least quarterly; and
  • Minutes should be taken at every meeting with the topics to be covered to include the following:
    • apologies for absence
    • conflicts of interest
    • approval and signature of minutes from previous meeting
    • actions arising from previous meetings
    • investment performance and strategy
    • risks to the scheme (new and existing)
    • administration including discretion cases and complaints
    • member engagement, including communications
    • sub-committee decisions
    • trustee and adviser fees and expenses (ie budget monitoring)
    • any decisions made since the previous meeting
    • trustee training
    • business plan
    • notifiable events
    • any other business

5.         Value for members

  • Trustees of DC schemes have a legal duty to produce a Value for Members (VFM) assessment and include findings in their annual chair statement;
  • The VFM assessment can have a significant impact on members’ savings and help safeguard positive member outcomes;
  • When compiling the VFM assessment, trustees should adopt a proportionate approach, based on the characteristics of their scheme; and
  • It is strongly recommended that DB schemes assess value for members to help ensure good member outcomes.

Now is the time…

The heavy regulatory burden imposed on schemes in recent years, combined with the introduction of auto-enrolment means that many schemes may not have spent the time they would have liked in reviewing governance procedures. In particular, DC scheme governance may have suffered simply because the spotlight (including that of TPR) has been focused for the large part on DB schemes and the inevitable funding and deficit issues that go hand in hand with these schemes and their legacies.

However, it is official – DC membership has now overtaken over that of DB schemes and trustee boards may want to look closely at the skills necessary to look after DC schemes where the member ultimately bears the risk for their own financial security. Engaging the younger generation should form part of this analysis. For instance, ‘millenials’ whose early careers are spent grappling with student debt, soaring hose prices, eye watering rents and lower salaries than previous generations will either view retirement saving as something to be kicked into the long grass for the time being or simply unrealistic.

Furthermore, as we see Environmental, Social and Governance issues (ESG) such as climate change finding its way into trustees’ investment considerations, there should there be more active efforts to co-opt younger people on to trustee boards.

Wedlake Bell Pensions & Employee Benefits team here to help

Where you are unsure about the role of a 21st century trustee or indeed if TPR is enquiring after your scheme’s compliance with its programme, we are happy to assist by working with you to ensure that you are meeting your legal obligations.