The Pensions Regulator has reaffirmed its commitment to improving standards of trusteeship, with a series of policies that place a particular focus on the role of professional and independent board members.
Last week the watchdog released a list of the names of schemes where trustees had failed to fulfil basic duties such as completing a scheme return or chair’s statement. While many were small schemes, others belonged to large sponsors and featured professional trustees on their boards.
It also released its updated definition of a professional trustee, alongside a consultation response on monetary penalties, as part of its 21st century trusteeship project.
The regulator is fairly clear that they see value in lay trustees
Robert Thomas, Law Debenture
Trustees will now be considered professional where “an individual represents or promotes themselves to the trustees or sponsors of one or more unrelated schemes... as having expertise in trustee matters generally (rather than just in certain areas), whether for remuneration or otherwise”.
That distinction will make itself felt in the regulator’s fine regime, which levies £1,000 from professional trustees for failure to submit scheme returns if they are an individual, or £2,000 otherwise.
In contrast, non-professionals would be fined £500 or £1,000, using the same distinction.
Definition welcomed
Helen Powell, counsel in Allen & Overy’s pensions practice, said the new definition had put to bed concerns about trustees unwittingly becoming professionals.
“It’s helpful that the focus of the test now is on, ‘Are you promoting yourself to an unrelated scheme?’ That’s not a boundary you would pass without noticing it,” she said.
The regulator’s response to the fines consultation also stated that it would consider increasing fines for those trustees who are not professional, but who have been brought on board and paid well to address the specific area in which the scheme later fails.
Powell said this would address concerns raised at consultation about former executives at the sponsor who are appointed as trustees to fulfil the same role as a professional, while avoiding the heightened expectations of a professional.
She said the tightened definition of professionalism would be useful to the regulator if it decides to create barriers to entry for professional trustees, which currently do not exist.
“If you have got a field where effectively anyone can set themselves up then there will be people who aren’t operating at that level,” said Powell.
Professional trustees not concerned
The development was welcomed by Robert Thomas, a director at Law Debenture Pension Trustees.
“Part of increasing standards of governance is to look to get more professionalism into the world of trustees,” he said. “In order to do that it’s understandable that they want to get their arms around what they’re dealing with.”
He said he was further encouraged by the regulator’s assertion that it would not seek to punish professional trustees who are appointed to badly managed schemes and are doing their best to identify and rectify problems at the time of the breach.
The regulator’s focus on improving standards also applies to lay trustees, and indeed many of the boards featuring in the list of penalty notices have no professional appointments.
Thomas said the use of fines on laypeople was appropriate given the responsibility of the board to scheme members, and it should not deter those who act properly from doing so.
“The regulator is fairly clear that they see value in lay trustees and that they aren’t seeking to put lay trustees off,” he said.
Boosting trusteeship further
As well as fining trustees who are in breach of regulation, there have been calls in recent months for trustees to be made more accountable for the overall performance of their schemes.
Kerrin Rosenberg, UK chief executive of consultancy Cardano, has advocated such a redefinition of the role. However, he said, this should not be enforced with a further system of fines.
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“We aren’t in any way suggesting that trustees are trying to break rules or behave improperly,” he said, but added: “It’s fair to say from a factual perspective or from a legal perspective that the trustees aren’t actually accountable for the financial performance [of the scheme].”
He said that often trustees are asked to take a course of action by the sponsor, and acquiesce to this demand after considering that the covenant is strong enough to support it. When this decision backfires, no one claims responsibility.
“I’d argue that simply making clear that [trustees] are accountable would immediately change behaviour,” he said.
