UK Pensions Regulator drops mandatory professional trustee plan

Out-Law News | 12 Feb 2020 | 6:09 pm | 2 min. read

The Pensions Regulator (TPR) will not impose a requirement to appoint at least one professional trustee on smaller schemes as part of plans to drive up standards, it has announced.

The regulator received a record number of responses to last year's consultation on the future of scheme trusteeship and governance. A "large majority" of these were against the proposal, citing the additional cost and burden on schemes as well as the lack of market capacity and the potential to reduce trustee diversity, according to its published summary of responses.

The regulator has also backtracked on plans to introduce mandatory knowledge requirements for trustees, to strengthen governance standards for sole trustees, and to require schemes to report on measures they have taken to improve the diversity of the trustee board. Instead it will update its code of practice on trustee knowledge and understanding (TKU) to make its expectations clearer, and set up an industry working group to find ways of supporting schemes to improve trustee diversity.

David Fairs, TPR's executive director of policy, said that there was "strong support from the industry" for driving up pension scheme governance standards.

Meeks Alastair

Alastair Meeks

Partner

The pensions system in Britain is reliant on the decision-making of trustees. Despite this, the regulator has opted not to take concrete measures to drive up standards.

"The route to achieving this goal is driving up standards across all schemes, but particularly in small and micro schemes that our research shows tends to have poor governance; we will encourage consolidation where trustees are unwilling or unable to improve governance to the required standards," he said. "Vital to this will be boosting knowledge and understanding and ensuring trustee boards have a diverse make up to make the best decisions for members."

"We have listened carefully to what the industry has told us, and we are not at this stage going to introduce new measures in areas such as sole trusteeship and adding a professional trustee to boards. However, we will continue to monitor standards closely to ensure our expectations for scheme governance are met, and that the right action is taken where schemes do not improve. Only in this way, and by working with industry bodies, can we ensure savers are adequately protected," he said.

However, pensions expert Alastair Meeks of Pinsent Masons, the law firm behind Out-Law, said that TPR's stance was "a major missed opportunity".

"The pensions system in Britain is reliant on the decision-making of trustees," he said. "Despite this, the regulator has opted not to take concrete measures to drive up standards."

"As a general rule, pension scheme trustees are too comfortable in their role, too lacking in effective oversight on a day to day basis and not willing enough to put the effort in to challenge their advisers and their own default instincts effectively. Introducing outside voices in the form of professional trustees would help. Requiring different perspectives by getting more diverse trustee boards would help even more. The regulator had the opportunity to act and blinked," he said.

Trustees and pension scheme board members have a statutory duty to ensure that they have sufficient training in, and knowledge and understanding of, the law relating to pensions and trusts, and to familiarise themselves with certain scheme documents. TPR does not intend to impose minimum qualification or CPD requirements, but will instead update its guidance to allow for "a range of acceptable methods for demonstrating TKU" such as the TPR trustee toolkit, relevant work experience or industry-based training. Allowing for a range of different options "should help reduce barriers for participating in trusteeship and support board diversity", according to the consultation response.

TPR intends to review and update the existing TKU code of practice and the trustee toolkit "to make its expectations clearer and to drive up standards of trusteeship". Once the new standards are in place, it will run a regulatory initiative to test TKU levels in practice, and to consider appropriate action where these fall below expectations.

Instead of introducing mandatory measures at this stage, TPR intends to support the standards developed by the Association of Professional Pension Trustees (APPT) and upcoming industry accreditation framework for professional trustees. The APPT also intends to develop an industry code for sole trusteeship, which TPR is again supportive of.