Trustees are required under the Pensions Act 2004 to make sure that at least one-third of trustees, or at least one-third of directors of the trustee company, are nominated by the scheme membership. But what is the best way to appoint member-nominated trustees?
MNTs may be directly elected by the membership. Alternatively, they may be chosen by a selection panel.
Advocates of an election approach hail the ‘skin in the game’ that motivates these trustees to carry out their duties effectively.
Maybe we should be looking at more hybrid ways of doing it
David Brooks, Broadstone
Speaking in a Pensions Expert podcast, David Brooks, technical director at consultancy Broadstone, said that schemes are best served by selecting their MNTs with a panel.
“Should it really be left to the vagaries of a popular vote?” he asked. “A person who’s particularly popular, or a rabble-rouser, may get elected and may not be the best person for the role.”
He said that a lot of trustees “are concerned about maintaining the skill set they’ve already got and adding to that skill set, and having some control over that process is quite important”.
Stephen Fallowell, former MNT at the Royal Bank of Scotland Group Pension Fund and committee member of the Association of Member Nominated Trustees, spoke in favour of electing trustees, arguing MNTs need a personal interest vested in their schemes.
“Pension funds are there for the members,” he said. “There’s a tendency I think for the industry to forget that it is actually there for the members, and not just there for the pension industry.”
Elections help to avoid group-think
According to the Pensions Regulator, the nomination process should involve at least all the scheme’s active and pensioner members.
For schemes without active or pensioner members, the nomination process must involve such deferred members as the trustees determine.
Fallowell cautioned against MNT selection for its tendency to select experts and produce a process dominated by group-think that he dubbed an “effective technocracy”. Experts are “very good at making the steam engine work, and keeping the steam engine on the rails”, he said.
Should member-nominated trustees be elected or selected?
Broadstone’s David Brooks and the Association of Member Nominated Trustees’ Stephen Fallowell debate the MNT selection process.
“They’re not so good at looking at the areas of destination, the route they should be taking, or sometimes the wellbeing of the actual passengers,” he continued.
A third way may be possible, according to Brooks. Expert panels, for example, could be tasked with selecting candidates that are subsequently elected by the membership.
“Maybe we should be looking at more hybrid ways of doing it, so we still manage to get some democracy in there, but also some level of control for the board,” he said.
