If the Pensions Regulator really wants a professional trustee on every board, it should prove that this will add value, says the Association of Member Nominated Trustees’ David Weeks, arguing that more immediate action should be taken to address weakening member representation on scheme boards.
TPR asked whether every pension scheme board, big or small, should include an accredited professional trustee. Many people, however, asked instead whether every board should not have adequate member-nominated representatives?
The Association for Member Nominated Trustees thinks that the regulator would do well to take note of this call for democracy. We are not the only ones to make the case.
AMNT members are firm believers in democracy in pension scheme governance. Nonetheless, we recognise that savers in small schemes should be entitled to the same level of regulatory protection as savers in big schemes.
The concept of corporate responsibility is weakened by the notion that trustees can be divided into two groups: the professionals, who know what they are doing, and the others, who do not
There is, however, an order of priority. The democratic deficit can, and should, be fixed straight away. The option of an accredited professional trustee on every board, by contrast, may not be needed in many cases.
AMNT members tend to see good pension scheme governance as a triangle, in which three sides need to be kept in balance. There are the sponsoring employers, who contribute funding; there are the consultants and fund managers who aim to ensure that scheme finances fructify through their skills and expertise.
But most importantly there are the individual scheme members, who make their financial contributions, and whose livelihoods in retirement are at stake. We think that all three of these interests need to be at the top table when decision-making takes place.
Accept no alternatives
There have been attempts from time to time to fob off the members with weaker alternatives. Consumer panels and consultative committees are examples – these are just feeble placebos.
The current TPR consultation exercise gives an opportunity to bring master trusts and the proposed new superfunds into line with what is now recognised as best democratic practice.
The Work and Pensions Committee viewed matters in a similar way in its report on the BHS pensions debacle. It saw then an employer who was overmighty, with advisers who were over-compliant with its wishes.
The select committee saw that the people who lost out in consequence were the individual pension scheme members and the wider public interest.
Pressure for an accredited professional trustee on every board appears to come from two main sources. There are professional trustees themselves who naturally enough recognise a good job protection scheme when they see one offered to them.
Then there is the regulator, which aims to control the accreditation. The regulator’s case seems to be that there is a long tail of schemes that are not well run. Typically, these are smaller schemes.
TPR asks: “Should it be mandatory, in due course, for each pension scheme board to engage a professional trustee?” Then: “If not, what reasons – other than current capacity – would make such a move undesirable?”
At present around 20-30 per cent of schemes employ a professional trustee on their boards.
Do professionals always add value?
We argue that there are a number of good reasons why this should be an aspiration for consideration in the longer term, rather than a specific target in the shorter term.
There is, as the regulator recognises, currently a lack of capacity. Then there is the extra cost that would be incurred, whether or not a scheme displayed any evidence of poor governance standards.
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Further, the concept of corporate responsibility is weakened by the notion that trustees can be divided into two groups: the professionals, who know what they are doing, and the others, who do not. In any case, there are clearly many schemes that are decently run, and who achieve this without resorting to the services of a professional trustee.
Thus, the tide of opinion seems clear. For immediate action, correct the democratic deficit where it exists.
As an aspiration in the future, look into the idea of whether a professional trustee on every board really would offer value for money for pension scheme members.
David Weeks is founding co-chair of the Association of Member Nominated Trustees
