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Future of trusteeship and governance

Retirement
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July 3, 2019

The Pensions Regulator consults on how to improve trusteeship and governance, through legislative and supervisory practices and driving consolidation.

On 2 July 2019, The Pensions Regulator (TPR) published a consultation document on the "future of trusteeship and governance" in occupational pension schemes. It seeks to improve the quality of pension schemes and the efficiency with which they are run.

The consultation builds on TPR's 21st Century Trusteeship exercise initiated in 2016 and poses questions exploring central themes of how to drive up trustee knowledge and understanding (TKU), increase professionalism and improve diversity on trustee boards.

In line with its "clearer, quicker, tougher" mantra, TPR considers greater consolidation to be part of the answer to current shortcomings of a "subset of disengaged trustees", particularly relating to small and micro schemes, those with less than 100 members. It cites that only 1% of small schemes and less than 20% of medium schemes "are doing everything [it believes] essential to assess and deliver value for savers". TPR predicts the number of schemes to reduce from 9,000 to 6,500 over the next five years.

The Regulator promises an increase in regulatory activity including thematic reviews over the next two years, concentrating first on investment governance, record-keeping and prompt and accurate financial transactions. Its focus will then move onto costs and charges, TKU (through a revised code and guidance that may contain competency-based standards) and public service scheme administration. TPR plans to be proactive in contacting schemes.

Schemes that do not meet the Regulator's expected standards will be investigated, and poorly run schemes will be called to take action, and encouraged to wind up if appropriate. The Regulator also supports the DWP's proposal for trustees to make triennial statements on whether they should consolidate into a larger scheme, and believes that this should be considered annually as part of their ‘value for members' assessment. It recognises that many small and micro schemes have with profits investments or valuable benefits such as guaranteed annuity rates, which can act as a barrier to wind up and consolidation. Consequently, the consultation document seeks industry views on the practicality of compensating members for the loss of the underlying guarantees or assigning the policies to individuals.

The consultation paper contains 19 questions. It asks whether an accredited professional trustee should sit on every board, citing that scheme return data suggests that somewhere between 20% and 30% of schemes already employ a professional trustee. It also questions whether TPR should seek legislation requiring trustees to demonstrate how they have acquired a minimum level of TKU, potentially with a requirement for ongoing continuous professional development. An accreditation framework to help hold professional trustees to the higher standard TPR expects is due to follow later this year.

The Regulator also expresses a concern about additional risks posed by sole trustees, although it recognises that there are some highly knowledgeable and experienced sole trustees offering "a valuable service that might be appropriate in a number of circumstances". The consultation document therefore seeks comments, views and evidence on the pros and cons of such appointments.

As was trailed in TPR's 21st Century Trusteeship publications, TPR supports diversity on a trustee board recognising that “better decisions and good governance relies on a mix of skills, knowledge and different perspectives” and may better reflect the profile of the scheme membership. The Regulator does not believe following the Dutch model of requiring various quotas to represent ages and genders is necessary but asks whether schemes, possibly above a certain size, should be required to report on the actions they are taking to ensure diversity on their boards.

The consultation is open for 12 weeks. Responses should be made via the interactive form within the consultation document, and e-mailed to TPR by noon on 24 September 2019.

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