The pension industry is broadly supportive of government proposals to improve pension trustee skills.
In response to the Department of Work and Pension’s consultation on this issue, which closed today, a number of firms welcomed plans to improve the help and guidance available for trustees in order to drive up standards across the industry. But there were reservations regarding plans to impose a register of trustees.
This is one of a number of pension consultations closing today. The DWP has called for evidence on pension trustee skills, capability, and culture – asking what barriers need to be removed to enable trustees to make more effective investment decisions.
The three areas on which it focuses are trustee capabilities, advice’s function, and obstacles to efficient trusteeship.
LCP emphasises the need for trustees to obtain more guidance and support in order to make investments in asset classes that benefit members, sponsors, the UK economy, and the energy transition while mitigating the effects of climate change. In addition, LCP requests for new regulations to enable wider and longer-term investment in productive finance for DB schemes, thereby altering the risk/reward climate for DB trustees.
LCP partner Nathalie Sims says: “Trustees know what they are doing. This consultation is a great opportunity to review the current regulatory framework and support provided for trustees to make the best decisions for the future of their members. The rapid growth of the Professional Trustee industry is a testament to how much demand there is to have additional support on trustee boards within the investment industry and beyond, and this growth is likely going to continue.”
However pension consultants Hymans Robertson says there needs to be increased support to help trustees make good investment decisions — but the firm said it had ‘reservations’ about trustee register.
Hymans Robertson partner and governance consulting lead Laura Andrikopoulos says: “Pensions regulation and guidance could more strongly encourage effectiveness reviews, as is common in the corporate governance world. The lack of focus on this in current regulation means many schemes can continue without evaluating their performance on a regular basis.
“We have reservations about the idea of a register of all trustees. TPR would need to be very clear about how this register would be used. It could have the effect of driving lay trustees out of their roles to avoid such registration unless it was very clear how this information would be used by TPR. However, a register of all trustees could help to ensure lay trustees feel as valued as professional trustees.”
Andrikopoulos adds that the firm does not support the idea of requiring schemes to have a certain proportion of accredited trustees. “This requirement could be quite onerous on the smaller schemes, due to the range of pension schemes, including a large number of very small schemes.”
Other pension firms are more supportive of a trustee register. SPP says there needs to be further consultation on the register’s contents, and argues that the information needed for the register should take into account the particular skills of the trustees, with more detailed and legitimately intrusive information needed for professional trustees.
A spokesperson says: “We believe that the contents of the register should be consulted on, and we are mindful of data minimisation principles underlying the UK’s data protection legislation. For example, where trustees are appointed for a specific skill-set, this should be reflected in the information on the register. Clearly, the information required for professional trustees should be more comprehensive (and justifiably intrusive) than for non-professional trustees.”
The Pensions Management Institute (PMI) calls for stricter requirements for professional trustees, emphasising the need for a clear distinction between lay and professional trustees. For professional trustee accreditation, it suggests a specialised trusteeship qualification at level six, equal to first-degree level.
Director of policy and external affairs Tim Middleton says: “The current requirements for professional trustees are insufficiently robust. There really needs to be a more emphatic distinction between the requirements for lay and professional trustees. We would suggest that a dedicated trusteeship qualification at level six (equivalent to first degree level) would be more appropriate for professional trustee accreditation.
“All lay trustees should be required to pass an examination set at least Ofqual level four (Diploma level). We believe that it would be appropriate to require a third of all trustees on a board to hold a form of accreditation. In the case of Master Trusts, we believe it would be appropriate for all trustees to be accredited.
Meanwhile, Tumelo has urged for a reevaluation of the fiduciary duty, with an emphasis on the timeline that trustee decisions are centred upon.
Tumelo CEO Georgia Stewart says: “We all know that fiduciary duty is the obligation where one party has to act in the best interests of another. But pension funds have a diverse set of members so the same set of decisions cannot be in the best interests of everyone. Trustees do an invaluable job of looking after their members, however clarification is needed on who trustees are representing and over what timeframe.
“Stewardship must be on the agenda if trustees are to meet the long-term needs of younger scheme members over a timeframe of 20 to 40 years. They should be taking strong action on engagement and voting, which won’t happen without explicit long-term framing of scheme investment strategies. Today, stewardship decisions are often watered down to guarantee short-term returns.”
TPT Retirement Solutions said supports a regulatory framework for DB plans that is comparable to DC Master Trusts and said there are benefits to having the same trustee board oversee both DC and DB Master Trusts.
TPT Retirement Solutions business development director Nicholas Clapp says: “As an organisation that operates both DC and DB Master Trusts, we believe that many DB schemes could benefit from a regulatory framework similar to the one that already exists for authorised DC Master Trusts. Our DB members are better served by our trustee board because the same board needs to also meet the requirements to oversee an authorised DC Master Trust.”
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