Introduction of professional trustees should be gradual

This is perhaps a key indicator that, in line with TPR’s ambition to engage with the industry to drive standards of governance upwards, the industry itself recognises the importance in setting a path for the future of trustee governance.

To aid our response, we surveyed the Pensions Management Institute’s membership, which covers the breadth of the industry from administrators, to actuaries, lawyers, pensioner payroll, investment professionals and trustees – both lay and professional. 

In most parts, the membership responded with clear majorities to questions posed. For example, 89 per cent said they felt the regulator should set higher expectations for professional trustees in terms of knowledge and understanding, but in other responses the answers were not so clear cut.

Ultimately, any move to introduce professional trustees on all scheme boards will take time

Industry split over professional trustee appointments

The question of whether trustee boards should engage a professional trustee split the membership, with 43 per cent saying they believed it should be made mandatory, while the remaining 57 per cent said they felt it should not be. 

From the results we were able to split out professional trustees and others, while it may be surprising the split in the responses only changed slightly in favour of mandatory professional trustees sitting on each trustee board.

Why is the industry so clearly divided on this matter?

As an institute that regularly engages with our members, in our latest PMI Pulse survey, we were pleasantly surprised when 85 per cent of respondents said professional trustees on every board would improve standards. 

However, 80 per cent also felt it would lead to increased costs, a major concern for any scheme. 

More importantly, 77 per cent said the sector does not have the capacity to meet the demand it would create. 

Many said they were also concerned that the requirement would initially cause standards to drop, as pensions professionals attempt to backfill to meet the demand but without the right skill sets or experience.

Professional trustees should be phased in over five years

TPR should consider a phased introduction of mandatory trustees over a period of five years, and the process could be based on the scheme size, either by assets or membership, or a combination of both. 

This would also allow time for efforts within the industry driving consolidation to take place. 

For example, where governance is a concern for the regulator, but the cost is an issue for their sponsors, smaller schemes could benefit from a move towards say a consolidator or a master trust. 

A phased introduction would also aid the issue of capacity. 

The accreditation of professional trustees – while delayed due to finessing of the standards being set by the Association of Professional Pension Trustees – would be well under way, and those seeking to meet the new demand would have to prove their capability to act as professional trustees before being let loose on schemes. 

The PMI has seen a significant increase in the numbers taking the Award in Pensions Trusteeship qualification, in anticipation of becoming professional trustees. 

The resistance coming from some professional trustees to accreditation is quite interesting, as many may feel they have served their time, got their professional qualifications as lawyers or actuaries, or in investment management. 

However, being the best lawyer in the world, for example, does not always mean you will make a good trustee. 

This is what we need to be very wary of when, and indeed if, it becomes mandatory for each trustee board to engage a professional trustee. 

It also needs to be recognised that the accreditation is there to ensure a minimum standard is being reached, and trustees can prove they have the right softer skill sets, not just the technical knowledge.

Ultimately, any move to introduce professional trustees on all scheme boards will take time. 

As an industry we need to consider all consequences, both intended and unintended, to ensure that our eyes remain fixed on the end goal, which is to improve standards of governance and drive better outcomes for all scheme members.

Lesley Carline is president of the PMI and a director at KGC Associates