On the go: A four-year bitter dispute over the running of a naval industry pension scheme has finally been brought to a close by the Pensions Regulator, after it identified governance failings that had cost the scheme £1m.
The quarrel concerned the trustee board of the Merchant Navy Ratings Pension Fund, a multi-employer defined benefit scheme of around 25,000 members and more than £1bn in assets.
It dated back to 2016 when the trustee board, recognising there were issues around the governance of the scheme, commissioned an independent review by Muse Advisory.
Muse submitted its report in July of that year, detailing a litany of failures on the part of the trustee directors, and made a number of recommendations to improve the governance of the scheme.
However, the trustee directors, despite having commissioned the review themselves, disagreed with a number of the recommendations and failed to implement several more, meaning many of the problems remained unaddressed.
This led to the trustee directors commissioning a second review, in 2018, led by House of Lords member Jeannie Drake. Baroness Drake’s report largely concurred with the findings of the Muse report and made several similar recommendations.
Yet again, the trustee directors disagreed with the report’s findings. They criticised the report, their own professional advisers, and the independent chair appointed in line with the report’s recommendations, who subsequently resigned.
Following this, and after it emerged that governance issues had cost the scheme an estimated £1m, and reflecting concerns that the trustee board was incapable of acting in the best interests of the scheme, TPR opened its own investigation in 2018.
The regulator issued a warning notice in 2019 after the trustee board had failed to submit suitable proposals to remedy the issues identified in the Drake report, and threatened the imposition of an independent trustee with exclusive powers.
Besides failing to implement the findings of the two previous reports, TPR charged the board with a number of failures, including conflicts of interest, a lack of transparency, a lack of professionalism, a failure to reach consensual decisions, and breaching its duty of confidence.
A regulatory intervention report published on Wednesday revealed the watchdog concluded that, though the board might be capable of certain day-to-day functions, it was fundamentally unable to make difficult strategic decisions, a shortcoming that posed a threat to members’ pensions.
TPR demanded the removal of all incumbent directors, who would be banned from holding those roles in future. It required that directors be limited to two five-year terms, that a nine-member board is created and split evenly between independent directors, employer directors and beneficiary directors, and a change to the board’s voting system.
Other demands, including giving nominating bodies the power to remove their respective directors, and having the trustee board select its chair from among the independent directors, were also made.
The trustee board did not accept all of the required changes, leading the regulator to pursue its enforcement action through to late 2019, with a hearing before the determinations panel scheduled for February 27 2020.
However, in the meantime a large number of changes were made to the board, including the resignation of all but one of its incumbent directors.
TPR remained concerned that not all of its requirements had been met, but the determinations panel found that the sweeping changes made to the board were sufficient, and any outstanding concerns too speculative to warrant the imposition of an independent trustee with exclusive powers.
In a statement, the regulator said: “While ultimately we did not use any powers in this case, our intervention resulted in the trustee and the nominating bodies making material and effective changes to restructure its board and to improve its governance as a whole — thereby reducing the long-term risks to the scheme and, ultimately, the savers.”
It continued: “We expect trustees to adhere to high standards of governance. Where poor governance is identified, we expect trustees to take steps to remedy these governance issues.
“We will consider appointing an independent trustee to pension schemes in circumstances where trustee governance does not meet our required standards and trustees are not able or willing to remedy the governance issues.”
