How to ensure your MNT selection process is right for your scheme

However, it is only since April 2006 and the Pensions Act 2004 that schemes – subject to certain exceptions – have been required to have at least one-third of their trustees to be member-nominated.

The size and nature of the scheme and the number of members to be involved in the selection process is going to determine which approach is going to be the most suitable

MNT requirements: A quick reminder

Under the Pensions Regulator’s code of practice, trustees are required to comply with the MNT requirements in accordance with the principles of fairness, transparency and proportionality.

The MNT nomination process should involve at least the scheme's active and pensioner members. Where there are no active members, the scheme can include deferred members as the trustees determine.

There should be a selection process in which some or all members are eligible to participate, and the nomination and selection process should take place within a reasonable period of the requirement to appoint an MNT being triggered. 

Nomination of MNTs

Before any MNT may be selected, he or she must be nominated. The starting point for nominations is that it is for the trustees to decide the MNT nomination criteria. However, it is important that anyone nominated has consented to that nomination.

The trustees need to consider the principles when deciding the nomination criteria. Key factors are the size of the scheme, the number of members, whether or not the members are adequately represented by any organisations and whether or not the scheme is closed to accrual. 

As mentioned above, while the regulator's code of practice requires all active members to be able to be nominated as MNTs that criterion is irrelevant where the scheme is closed. In that case, the trustees are required to consider nominations from those deferred members they decide are eligible to participate as well as pensioner members.

Selection of MNTs

The selection process must be set out in the MNT arrangements and involve at least some of the members. Again, the principles of fairness, transparency and proportionality are central to the selection process.

There is no one-size-fits-all approach to MNT selection. As with the nomination process, the size and nature of the scheme and the number of members to be involved in the selection process is going to determine which approach is going to be the most suitable.

The regulator's code of practice suggests the following possible approaches to selection: a ballot, selection panels, selection by member representative committees, selection by pension management committees, selection by trade unions and selection by existing trustees. The trustees can also go for a mix and match approach – there is no need to select all MNTs in the same way.

Over the last few years, schemes have increasingly closed to future accrual. This means that over time many schemes will have less connection with the current workforce of the employer. It is all the more important, therefore, that the trustees choose a selection process that is the most effective when considering the size of the scheme and the constituent parts of its membership both in terms of number and membership type, as well as location.

Some examples

• The ABC pension scheme has several thousand members and is closed to accrual. The several hundred active deferred members are spread across several UK sites. In such a case, selection by representative committees or trade unions for active deferred members and by ballot for pensioner members may be most appropriate.

• The XYZ Pension Scheme has several hundred members and is closed to accrual. Its employer has one UK site. Selection by the existing trustees or by a selection panel may be most appropriate.

Ruth Bamforth is a director at law firm Walker Morris