In response to the Pension Regulator’s (TPR) consultation on 21st Century Trusteeship and Governance, PTL outlines the five areas that should be considered:
Professional Trustees:
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Qualifications; all professional independent trustees should hold a relevant and current qualification
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Capital adequacy: all professional independent trustees should be able to demonstrate that they pass a capital adequacy test
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Professional indemnity insurance: all professional independent trustees should have adequate insurance
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Audit Assurance Framework (AAF): all professional independent trustees should submit themselves to an AAF
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Peer review: all professional independent trustees should operate a peer review mechanism – not to act as a barrier to timely decision making but as a quality control mechanism
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TKU: all professional independent trustees should have ongoing supervision or external audit of the quantum and quality of training they have.
Raise the bar for chairmanship: No board can be led by an ineffective chair, and it is the role of the chair to support other trustees and improve the likelihood of appropriate scheme processes being put in place. PTL urges TPR to consider measures such as: disclosure of the name of the chair in the scheme return and the annual report; as a minimum the chair should completes the trustee toolkit and the PMI trustee exam; the chair should be independent of the sponsor; TPR should produce or endorse guidance on what makes a good chair.
Ensure a level playing field for trustees: Good governance is good governance wherever it is encountered. In the context of pension scheme governance it would be sensible for DB and DC trustees to be subject to the same requirements for and or standards of governance. DB trustees should be required to appoint a chair and to report on compliance against standards as DC trustees must.
Education, Education, Education – enough already: The Regulator’s policy of educate, enable and enforce, along with the tools they currently provide, are sufficient. To improve standards, the Regulator should not produce more material but must use their enforcement powers, in this respect, more frequently. Ongoing learning is vital to trustees and a CPD framework is crucial. Trustees should be compelled to disclose their training in both their annual report and their scheme return.
Management of conflicts is key, not the conflicts themselves: It’s important to remember that nearly all trustees are conflicted in some way or another. Having a conflict of interest does not make a bad trustee, but failing to manage it does. A different question is needed here - rather than asking about conflicts of interest, the Regulator should instead ask “are they properly managed?” This can be done through the TKU framework and enforcement by the Regulator.
Richard Butcher MD of PTL said: “'Great trustees are knowledgeable, motivated, curious people who are open to new ideas, and good governance is vital to the success of a pension scheme. With really good governance the need for large chunks of legislation and regulation falls away – leading to a better outcomes for all. Our consultation response argues that the Regulator should significantly drive up standards on all trustees but particularly for those who trade as professional independent trustees. It also argues for raising the accountability of trustees.
Significantly increasing standards and accountability will lead to a consolidation in the number of trustees – in turn facilitating better regulation of those that remain.”
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