Any other business: 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?
Earlier this month the Pensions Regulator issued its first fines against mastertrusts for failing to provide a chair’s statement.
Often the soft skills and the listening skills are as important as any technical skills
Neil McPherson, Capital Cranfield
MC Trustee Ltd, the company acting as trustee of the Nurture Master Trust, was ordered to pay the maximum fine of £2,000 because it was a professional trustee. In the wider defined contribution world, professional trustee company PTL was last year fined £6,000 – also receiving the highest fine, for three schemes where it has trustee duties – for similar breaches.
Mandatory chair’s statement fines can be between £500 and £2,000, but the regulator has made it clear that it will always issue the maximum fine where a professional is present on the board, in an effort to boost governance standards.
The regulator's executive director Andrew Warwick-Thompson has described the overall governance standards of pension schemes as “patchy”, pointing to evidence that good governance can boost investment returns by 1 to 2 per cent every year.
“The presence of professional trustees on boards has a positive effect on stewardship,” he said in a recent statement, but added: “We expect higher standards from professional trustees.”
Professionals still needed
Despite the issuance of fines, industry experts agreed that professionals are a valuable addition to trustee boards.
“[Fines are] something that I’ve always felt was going to be on the rise with increased regulation around trust-based schemes,” said Mark Futcher, head of workplace wealth at consultancy Barnett Waddingham.
In the main, professional trustees help schemes to make sure they comply with ever-more stringent regulation, he said, adding: “They also bring a bit of discipline to the trustee board and make them concentrate on the things that are really relevant.”
Standards among professional trustees could vary, as those who previously only worked with defined benefit schemes are transitioning to DC, in which they might have less experience.
Clive Weber, pensions partner at law firm Wedlake Bell, agreed that professional trustees’ ability to navigate a broad range of issues, and to “act as a useful channel of communication between the trustee board and the sponsoring employer” make them a precious aid in scheme governance.
But in picking a professional trustee, he advised schemes to consider their own needs before evaluating prospective professional trustees, and to consult existing advisers.
“Professional trustees vary in quality, in skill sets and approach. This is inevitable given there is no common examination or professional qualification required of professional trustees,” he said.
Testing trustees
The regulator is expected to clarify its definition and expectations of professionals this year, alongside further detail of the consequences for professionals who fail to meet its standards.
That clarification could include a ‘fit and proper’ test for professional trustees, although the suggestion of qualifications received a mixed response in consultations on ‘21st Century Trusteeship and Governance’.
Neil McPherson, managing director of trustee company Capital Cranfield, welcomed a revised definition as a remedy to current confusion about the difference between independent and professional trustees.
But he said a formal qualification was not necessary for professional trustees, and pointed to the Association of Professional Pension Trustees as a source of a sufficiently robust code of conduct.
“The issue is, I think, more broadly... where professionals may not be present or are not members of the APPT,” he said, recommending instead a fit and proper test for chairs of trustees, in line with regulation being introduced for mastertrusts.
TPR bares its teeth with first mastertrust fines
The Pensions Regulator has imposed its first fines against mastertrusts for failing to complete a chair’s statement, as it signals a hard approach to dealing with defined contribution administration lapses.
What to look for
McPherson said Capital Cranfield’s recruitment process demands individuals have relevant experience across a broad spectrum of sectors, but added that “often the soft skills and the listening skills are as important as any technical skills” in helping schemes.
Ensuring standards for professional trustees
It is an unfortunate fact that pensions often only become a front-page story when something has gone horribly wrong. Recent examples show once again the pain of corporate failure has been exacerbated by a defined benefit scheme deficit.
Richard Butcher, managing director at PTL, agreed with McPherson, but said that hard qualifications are a must-have for any professional trustee: “There are people who are very well qualified by experience who I’ve had to turn away.”
He supported the idea of a standardised qualification as “one of the barriers to entry for professional trustees”, and added that the regulator’s use of maximum fines for professionals is also a necessary safeguard for governance standards.
“There’s a standard of care that’s expected of any trustee,” he said. “I don’t think it’s an unreasonable expectation that a professional trustee should act to a higher standard.”
