From the blog: The Pensions Regulator’s recent findings of large variations in trusteeship standards have thrown up questions about the governance of pension funds.
More specifically, member-nominated trustees present a challenge. A board undoubtedly benefits from the presence of lay trustees bringing a different and more personal perspective.
However, the flipside of this fresh approach is the need to bring them up to speed on the complexities of running a workplace pension scheme.
More specifically, member-nominated trustees present a challenge. A board undoubtedly benefits from the presence of lay trustees bringing a different and more personal perspective.
The system is ripe for change, with a need to refocus on basic principles
However, the flipside of this fresh approach is the need to bring them up to speed on the complexities of running a workplace pension scheme, often from a low starting point of relevant financial knowledge.
Imposing knowledge requirements on MNTs to help them to reach the standards for financial experts was thought to be the answer. But that is impractical and if pursued, would likely decimate the already depleted pool of MNTs.
Recently, focus has also turned to professional trustees. Their numbers have swelled, but entry qualifications have not changed, prompting concerns regarding standards in that group.
The system is ripe for change, with a need to refocus on basic principles. Each board must work effectively as a coherent group, to an overall standard focused on the needs of the particular scheme, wherever it is on its journey. I therefore suggest the following requirements:
The recently introduced system of compulsory chair for defined contribution schemes with specific duties should be extended to all schemes;
The chair should be a professional, in accordance with the definition recently set out by the regulator, and subject to a ‘fit and proper’ regulatory requirement. The chair must be under a strong duty to ensure that adequate, regular and relevant training is undertaken by all trustees;
The chair should be selected by the sponsor from a pool elected by the membership, with a particular focus on leadership ability;
The board’s membership needs to be directed in order to gain the correct balance of expertise. MNTs should therefore be appointed by the chair, from a shortlist nominated by the membership;
Decisions must be made involving the entire board. The chair must ensure all board members are involved and engaged, including being present at meetings where matters are debated and decisions taken.
To improve the public trust in pensions and increase participation, governance must be seen to be robust. A refocusing of trustee boards is an essential step to achieving that.
Kevin LeGrand is a council member and former president of the Pensions Management Institute
