What defines a professional trustee?

There is consensus from the pensions industry that a professional trustee can often help improve the decision-making and the governance of a trustee board.

Currently any individual, unless legally disqualified, can act as a professional trustee

Currently any individual, unless legally disqualified – for example for bankruptcy – can act as a professional trustee. There is no formal regulation and no requirement for any recognised qualifications.

In response to the regulator’s '21century trusteeship and governance' discussion paper, the pensions industry expressed concern about how 'professional trustees' were defined in the regulator’s guidance solely on the basis of remuneration, given the growing practice of remunerating lay trustees who do not provide commercial trustee services or hold multiple scheme appointments.

The regulator recently held a consultation on its monetary policies and has developed a revised description of how a professional trustee will be interpreted. The new proposed definition for a professional trustee whether or not incorporated, is that the person:

• acts as a trustee of the scheme in the course of the business of being a trustee; or

• is an expert, or holds themselves out as an expert, in trustee matters generally.

This definition is for the purpose of the regulator’s monetary penalties. While it will not be legally binding for wider purposes, obviously the pensions industry will have regard to it when considering market practice as to who should be a professional trustee.

What are the current requirements for becoming a pro trustee?

There is no requirement for professional trustees to possess any recognised qualifications. 

However, the Association of Professional Pension Trustees was established in 2012 and its aim is to encourage and promote the highest professional standards in those who practise as professional pension trustees.

The Pensions Management Institute and the APPT consulted on an advanced qualification, the diploma in pension trusteeship, in the summer of 2016. 

However, in response the overall view of the industry was that now was not the right time for this qualification. The APPT is currently working with the regulator on developing protocols for professional trustees to adhere to.  

The regulator also noted a number of responses saying that unnecessary regulation could place a burden on well-run schemes, recognising that many thought that formal qualifications for professional trustees would not necessarily provide an appropriate measure of all the skills required for the role. 

The pensions industry also recognised that while it might be favourable to require registration of professional trustees with a professional body, there was divided opinion as to which professional body should or would be able to oversee this registration.

Given a lack of consensus on the exact definition or qualifications needed, it falls to individual pension schemes to seek out the best individual to act as a professional trustee.

So what should trustee boards be looking for?

When hiring a professional trustee, a trustee board should ensure the person in question:

• has relevant pensions and/or pensions trustee experience

• is registered with a professional or industry organisation (and consideration of any professional qualifications or continuing professional development)

• has specific experience in relation to the scheme’s particular circumstances

• agrees to be regularly reviewed by the trustee board in relation to trustee competencies and knowledge as well as understanding of trustee duties and scheme documentation

• has professional indemnity insurance cover

• shows an awareness of cyber security issues with secure IT systems in place

Laura Clarke is an associate at law firm CMS