Both the Pensions Regulator and industry working groups are seeking to define the responsibilities and standards expected of professional trustees. If they do not achieve consistency, writes the Pensions Management Institute's Tim Middleton, it will be hard to justify their implementation.
While lay trustees are covered by the Pensions Regulator’s 21st Century Trusteeship campaign, the past 12 months have seen some significant developments affecting professional trustees.
Last year, the regulator proposed a formal definition of what constitutes a professional trustee. Since then, we have seen the emergence of the Professional Trustee Standards Working Group, which seeks to identify the standards expected of a professional trustee.
It surely makes sense for the same standards to apply to those in both roles, to avoid having to provide justification for the existence of inconsistent standards
More recently, the regulator has consulted on the authorisation of mastertrusts and the standards expected of those charged with their supervision. It is the relationship between these two conclusions, drawn by the regulator and the PTSWG, that will be significant.
Pros should meet higher expectations
Professional trustees may be appointed to boards for several reasons, all of which require high standards of professionalism.
The management of a defined benefit scheme has become increasingly complicated and the expertise of a specialist may prove necessary. Alternatively, company officers may believe the needs of scheme and sponsor are an irresolvable conflict of interest.
The emergence of mastertrusts, which provide retirement benefits for millions of members employed by a range of unrelated employers, clearly entails a role of onerous responsibility.
Diverging standards will not benefit sector
Perhaps the most important principle to be observed is consistency. In considering the requirements of trustees for mastertrusts, the regulator has sought to identify standards which make this role distinct from that of the traditional lay trustee.
Candidates must demonstrate high standards of technical knowledge, experience and be required to conform to a ‘fit and proper’ test, of the style used by the Financial Conduct Authority.
Thankfully, in assessing what should be expected of professional trustees, PTSWG considers similar criteria. It surely makes sense for the same standards to apply to those in both roles, to avoid having to provide justification for the existence of inconsistent standards.
Seven in 10 professional trustees want standards body
Professional trustees have called for a body to set standards and monitor performance in the industry, but experts have cautioned against any measure that threatens the level of cognitive diversity on trustee boards.
Scheme governance has become an increasingly complicated – and therefore professionalised – endeavour. It is right that the regulator should set high standards for those in the role.
However, credible regulatory standards must ensure that the expectations various industry bodies have of professional trustees are aligned and well coordinated.
Tim Middleton is technical consultant for the Pensions Management Institute
