Professional trustees told to 'comply or explain' in draft standards

In November, an Eversheds Sutherland survey of professional trustees found that 71 per cent of respondents want a professional body to set standards and monitor performance, while just 38 per cent were in favour of mandatory qualifications.

Six key areas, including fitness and propriety, integrity, expertise and care, impartiality and conflicts of interest, professional behaviour, and systems and controls, were outlined for professional trustees to demonstrate their competence by the PTSWG.

The objective is noble and reasonable and probably right, but it’s just not very robust

Richard Butcher, PTL

Launched on Wednesday, the consultation closes on March 2 2018, and the finalised standards are expected to be published in the second quarter of 2018. The working group will then develop an accreditation framework that professional trustees will be expected to meet.

Comply or explain

The standards apply to anyone falling within the Pensions Regulator’s description of a professional trustee, as set out in a policy document published in August.

They will be applied on a "comply or explain" basis, meaning professional trustees will be expected to describe how they meet each of the standards. If one of more of the standards have not been met, the trustees must explain why.

“Disclosures against the standards should improve the functioning of the market for professional trustees,” states the consultation document, adding that professional trustees should expect to be asked to provide this disclosure to employers or existing trustees when seeking appointments.

The regulator said it supports the standards and will consider compliance with them “as an indicator of fitness and propriety”.

In a statement, chief executive Lesley Titcomb said: “We know from our research that professional trustees on pension boards have a positive effect on governance and administration across thousands of schemes. Professional trustees should be able to demonstrate that they have sufficient expertise, knowledge and skills to perform the role”.

Richard Butcher, managing director at professional trustee company PTL and chair of the Pensions and Lifetime Savings Association, said he agreed with the ‘comply or explain’ concept in principle.

However, he said: “What’s to stop an unscrupulous professional trustee saying ‘I comply’… and then doing exactly the opposite?”

Third-party oversight needed

Butcher said it is difficult for corporates and trustee boards to be certain about whether a professional trustee is giving a genuine disclosure of quality, particularly when there is no third party reviewing it.

“The objective is noble and reasonable and probably right, but it’s just not very robust,” he said.

Butcher noted that many of the six points are difficult to comply or explain, such as acting with honesty and integrity.

“What they need really is demonstrable metrics… you need to have provisions that can be measured and then there probably needs to be some sort of third-party oversight of those measurable qualities,” he added.

Tim Middleton, member of the PTSWG and technical consultant at the Pensions Management Institute, said that the difficult part of this is going to be “the accreditation process, how this is actually all evidenced”.

He said the working group has had a lot of discussion about this, and “at this point we really don’t want to rule things out, and so we’d like to hear opinions from everybody who is working in professional trusteeship as to how they think that this can most effectively be managed”.

Trustee chair role crucial to boosting standards

Part of the consultation focuses on additional standards for professional trustees who act as chairs. It sets out standards on board leadership and board and chair quality, arguing that the chair “sets the tone and provides strategic direction for the trustee board as a whole”.

Butcher disagreed with this: “The board should set the strategic direction under the leadership of the chair, but it’s not up to the chair to set the strategic direction.”

Neil McPherson, managing director at Capital Cranfield Trustees, however, stressed that the chair is “responsible for raising [trustee knowledge and understanding] and the balance of the whole board” and therefore “absolutely essential to raising standards, whether that chair is a lay trustee or a professional trustee”.

He noted that the consultation is “putting a ring around what should already be there” in terms of high standards among professional trustees.

The regulator has stated it does not consider independence to determine whether a person is a professional trustee. It maintains that, while professional trustees are often independent, this is not always the case because they may have employment links with the employer, for example. It is also possible for a lay trustee to be independent.

McPherson noted that “independence” was missing from the list of key areas in the consultation. He believes independence as a characteristic should be a definitional aspect of professional trustees.

“That plays a very important role in addressing potential conflicts of interest if you’re appointing a trustee firm, but also from what you expect from your professional trustee,” he said.

Middleton said the absence of independence in the list of key areas “stems from the Pensions Regulator’s definition of what a professional trustee is”.