Could IORP II be the end of the road for lay trustees?

The problem arises with a new directive that came from the European Commission on March 27, known as IORP II. However, the potential impact of the EC’s directive may have disappeared below the radar due to the major pension changes in the chancellor’s Budget. 

I agree with the EC’s contention that countries across Europe face a background of an ageing population. I agree with the view of the EC’s internal market and services commissioner, Michel Barnier, that “occupational pension funds are at the junction of these... challenges”.

I do not agree, however, with Barnier’s contention that his IORP II “legislative proposal will improve governance and transparency of such funds in Europe, improving financial stability as well as promoting cross-border activity, to further develop occupational pensions as key long-term investors”.

The Confederation of British Industry, the Trades Union Congress and the National Association of Pension Funds all take the same view I do. They came together in a letter on May 22 to call on the UK pensions minister to lobby in Europe for IORP II to be revised. They point out significant challenges that need to be addressed. They express concern about the overprescriptive nature of the proposals. I urge all lay trustees to back their move.

The alliance of all these major organisations made clear: “Our starting point is that we strongly support the directive’s objective of ensuring pension schemes are well run and communicate well with their members. However, we are concerned that the way the new directive has been put together runs counter to these objectives. We urge the government to press for a much simpler, less prescriptive new directive as the Council of Ministers begins its scrutiny of the legislation.” The joint signatories set out six key concerns. Two of these, in particular, affect lay trustees.

The first is that the directive “risks undermining the vital role that businesses and employees play in workforce pensions”. 

A new requirement for professional qualifications for “all persons who effectively run the institution” would – on its own – appear to mean the end of member-nominated and employer-nominated trustees. This is of particular concern as the new IORP II also removes the option for a scheme’s advisers to be the ones who hold the professional qualifications. It places the onus, instead, on “all persons who effectively run the institution or have other key functions”.

The second concern was the counterproductive nature of some of the provision being proposed. For example, regarding the requirement for schemes to provide a standardised, two-page pension benefit statement, the joint signatories highlighted how “the list of information required is so extensive that these statements are likely to run to at least seven pages”.

I wholly support the EC’s aims of making pension schemes more transparent and improving governance around them. However, it is also my view that IORP II shows a taste for micro-managed prescription – and this level of attention to detail, while overlooking the bigger picture, is what could directly threaten the future of the lay trustee as we know it.

In their letter to Steve Webb, the CBI, the TUC and the NAPF concluded that the directive “should be much less prescriptive, with more flexibility for implementation in a way that recognises the huge variety in national pension systems. We urge you and your officials to make these arguments in the Council of Ministers”. My own view is that progress will best be made by recruiting allies among other member states rather than by the UK seeking to stand alone. 

David Weeks is a director of Lovell Pension Scheme Trustee Company and has been elected to the committee of the Association of Member Nominated Trustees