Good governance starts with great trusteeship 

Following on from the implementation of The Pensions Regulator’s (“TPR”) new General Code of Practice (outlining governance requirements for pension schemes), TPR has set out its revised approach to regulating professional trustees and has delivered a keynote speech on the future of pension scheme trusteeship.
With a government consultation on trusteeship also expected there’s no doubt that the regulatory focus is now firmly on the role trustees play in delivering a pensions system that is fit for the future.

Good governance is crucial to delivering a well-run pension scheme, and trustees are responsible for delivering it, so it makes sense that in the drive to improve governance, TPR and the DWP are both turning their focus to trusteeship. Policies, procedures and other governance arrangements are the foundations put in place to make sure that trustees uphold their fiduciary duties, and act in accordance with their other legal and regulatory requirements which, in a changing pensions landscape, are becoming more onerous.

The market, already merging, will be further consolidated as the measures in the Pension Schemes Bill come into force, and the Government seeks to deliver its vision of fewer, bigger and better run pension schemes that provide more value for members.

Employing a professional independent trustee is now common – industry research suggests over half of UK occupational schemes now use a professional or sole trustee – and this is likely to become increasingly so as both scheme size and regulatory burden grows.

A higher standard is already required of professional trustees by the courts (e.g. duty to act prudently – a professional trustee will generally be deemed to have greater skills and expertise than a lay trustee), and by TPR, who expects professional trustees to gain accreditation and to “show a greater level of knowledge and meet higher standards than other trustees”.

A new framework overseeing professional trustees is due to be introduced by TPR as part of its move to a more prudential style of regulation and in response to the growing numbers of professional trustee appointments. TPR’s supervision is being extended to build formal relationships with the largest trustee firms initially, with the plan to then extend to the rest of the market. The initial focus will be on how professional trustee firms operate, including profit and remuneration models.

Subsequently, following a speech, given on the same day the Pension Schemes Bill was published, TPR set out its vision for trusteeship “in a world of mega-funds and superfunds”. Chief Executive Nausicaa Delfas highlighted how duties and expectations on trustees will grow and set out 5 key traits TPR considers central to good trusteeship:

1. Saver outcome focus – demonstrated through strong risk management controls, high standards of stewardship and a genuine understanding of how to balance risk and reward
2. Constructive challenge – including managing conflicts and decisions are always made purely in member best interests
3. Being highly skilled and diligent – diverse experience and expertise are identified as key, as is raising standards of trusteeship across the board
4. Being collaborative but accountable – schemes are complex so trustees need to take the right advice but equally must understand that their duty of care and skill “cannot be delegated or abdicated”
5. Data led – demonstrated by asking the right questions based on suitable insights provided by quality data – which is why getting the data right is so important.

Looking ahead, TPR has promised to work with the The Pensions Management Institute , the industry and other interested parties, to develop higher standards of accreditation for trustees. It has also stated that it will work closely with the Government on the proposed consultation on trusteeship. With so much change on the horizon, there’s no doubt that it’s both an exciting time, and a demanding one, to be a pension scheme trustee.