There are a ‘worryingly low’ proportion of trustees engaging with guidance on pensions, according to the government, which launched a call for evidence today on the best way to drive up standards across the sector.
This call for evidence is being jointly supported by the Department of Work & Pensions and HM Treasury, and is part of a bundle of pension consultations and documents published today — aimed at driving better outcomes through savers through increased consolidation, a broader investment strategy, a focus on value for money, and a wider range of options at retirement.
Against this shifting and increasingly complex regulatory background, the DWP said trustees will continue play an important role “ensuring that pension schemes are run properly and members benefits are secure”.
As with other measures it is clear that the government is keen to learn lessons from Australia which has a more mature DC market which has to date delivered better returns for pension savers.
In its call for evidence the DWP notes: “Improving outcomes for savers will not just come through better potential returns, but also through improved governance. Evidence from Australia’s “constructively tough” approach to supervision of trustees shows the importance of focusing on good governance to improve results for members.”
It adds: “We understand that trustees are hard-working, committed individuals with a difficult role. However, we also believe that savers in all schemes should rightly expect that the trustees entrusted to look after their retirement savings have the skills and capability to do this job properly.
“It is concerning that some trustees, especially at the smaller end of the market, appear to be unaware of many of their duties and legal obligations.”
This initiative supports the government’s other stated plans of boosting DC investments in unlisted equities and driving consolidation in the market, via the value for money framework.
In its call for evidence the DWP links the two initiatives: “There is evidence to suggest that improving trustee capability and skills, particularly in DC schemes, would improve trustees’ ability to consider investment in a full range of assets, including unlisted equities, ensuring that they are able to seek the highest possible returns for savers. Currently UK trustees are not investing in high-growth companies, to the same extent their international counterparts are.”
The DWP says it is seeking information on potential policy options around trustee registration, accreditation requirement and professionalism to improve trustee skills and capacity.
It also wants to look at the role of investment consultants in providing advice to trustees and examine potentially barriers that currently prevent trustee effectiveness. It says: “We recognise that trustees may encounter other difficulties in fulfilling their role… and are seeking evidence on whether the current framework and guidance on fiduciary duty is sufficient to help trustees make decisions in the best long-term interest of savers.” This will also cover whether trustees have sufficient time and support to fulfil their duties.
This latest call for evidence has been broadly welcomed by the industry. Dalriada Trustees director and professional trustee David Fogarty says: “Alongside the innovative proposals launched in the Mansion House speech, there’s the opportunity for the Government to reshape what trusteeship looks like.
“We generally think about trusteeship as a trustee board structure including a broad range of skills and knowledge including member nominated trustee that meets quarterly or even less frequently.
“However, comparable financial entities (banks, building societies and life insurance companies) do not work in this way to manage complex financial structures. Rather they use a team of experts alongside robust systems who manage risks and opportunities on a daily/hourly basis.”
He adds: “Revisiting how trusteeship should be structured could allow the management of schemes to become akin to that approach. However, it requires a real change to the trustee board landscape.
“Due in part to cost but also resources it would not be possible to manage smaller schemes in this way. This is where consolidation could play a role. We are keen to see a greater range of innovative consolidation solutions to help these schemes deliver member benefits.”
Meanwhile Nathalie Sims is a partner at LCP adds: “Although the government has expressed concerns about levels of knowledge and expertise amongst trustees, the truth is that the trustee landscape is already evolving at a rapid pace.
“Our latest Professional Trustee survey demonstrates that nearly half of all UK pension schemes have at least one professional trustee appointed, and nearly 20 per cent of those are in a sole corporate trustee arrangement where entire trustee boards are being replaced with a team within a professional trustee firm to supplement the need for additional skills around investment and trustee effectiveness. As a result, large schemes in particular generally have a high level of professionalism and knowledge to draw upon when making investment decisions.
“There is however a risk that the increase in demand for those services could result in a squeeze in supply of professional trustee services which could lead to sub-optimal outcomes, especially for schemes without a professional trustee, looking for additional skills to supplement their board going forward.”
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