Efforts to improve the level of experience and competence of trustee boards must not come at the expense of diversity, politicians have warned, as dealing with groupthink remains a key concern in defined benefit pensions.
The news comes as the Pensions Regulator confirmed its intentions to drive up standards of both lay and professional trusteeship in an attempt to make schemes better-informed buyers.
It proposed a definition of professional trustees for consultation on Thursday, aiming to clearly identify which board members will be held to higher standards.
The regulator will consider anyone who "acts as a trustee of the scheme in the course of the business of being a trustee", or "is an expert, or holds themselves out as an expert, in trustee matters generally" to be a professional trustee under the new guidelines.
You can expect something of a push from us to try and drive up the standards of trustees
Fred Berry, the Pensions Regulator
Recent months have seen industry thought turn towards the structural problems of DB, in response to an emergent narrative of pensions in crisis.
Speaking at a roundtable on the future of DB pensions hosted by fiduciary manager SEI on Wednesday, Labour and SNP politicians did not rule out changes to the framework of DB.
But they emphasised the importance of robust trustee boards if initiatives such as the Financial Conduct Authority’s investigations into conflicts of interest are to have any bite.
“It does bring us back to this question of trustees having the broad range of skills that they need,” said Ian Blackford, SNP pensions spokesperson and MP for Ross, Skye and Lochaber.
Trustee education has been in the sights of the regulator for some time now, with last year’s consultation on 21st century trusteeship identifying challenges faced by boards.
Experience isn’t everything
Shadow pensions minister and MP for Stockton North, Alex Cunningham, said while the focus on skills was welcome, regulators should be conscious of the benefits of diversity, with trustees who lack years of financial experience often offering fresh perspective.
“I don’t think we should underestimate the importance of having the person that asks a difficult question,” he said, adding that retaining trade union and member representation on boards was essential.
However Fred Berry, lead investment consultant at the regulator, reassured that the watchdog would maintain a focus on the “balance of skills on trustee boards”.
“Within that there may be a role for the trustee who asks awkward questions,” he said.
Berry also confirmed that the regulator would soon publish specific investment guidance for DB trustees, and is aiming to do so by the end of March.
How to choose a professional trustee for your scheme
A regulatory burden that has proved too much even for some professional trustees and a challenging investment environment mean running a scheme has arguably never been harder. So should schemes appoint professional trustees, and what qualities do they need to look for?
“You can expect something of a push from us to try and drive up the standards of trustees,” he said, adding that professional trustees would come under particular scrutiny.
No need for further measures?
That focus was welcomed by the Pensions and Lifetime Savings Association’s director of external affairs Graham Vidler, who said the complexity of the value chain was “inevitable” in the current system.
“Ultimately it’s down to the trustees... to hold the people advising them [and] providing services to them to account,” he said.
The PLSA recently suggested the creation of ‘superfunds’, merging both the assets and liabilities of schemes and removing them from the sponsor, in response to a perceived crisis beyond the reach of improved governance.
But Berry played down the need for such drastic measures. “By and large, the system is working as it is intended to,” he said.
