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Flying the flag for trustees

After last minute confrontations between both houses of parliament, the Pensions Bill finally received royal assent on 18 November to become the Pensions Act 2004. Perhaps the most notable provisions are the creation of the new Pension Protection Fund, the new Financial Assistance Scheme and the establishment of a new proactive pensions regulator. However, many provisions will directly affect pension scheme trustees and seek to encourage more scheme members to have more direct involvement in the running of their scheme and to require all trustees to have appropriate knowledge and understanding of pensions and trust law. In the UK, of course, the majority of trustees are ‘lay’ (ie, non-professional) trustees either being nominated/elected by scheme members or appointed by the sponsoring employer.
Once again, the role of the trustee is being widely scrutinised. The principle underlying pension legislation is that the trustees are primarily responsible for the good governance of occupational pension schemes and have the principal responsibility for safeguarding the interests of pension scheme members.
So what’s gone wrong? If trustees are indeed responsible for the stewardship and protection of modern day pension schemes, why are the government and the pensions industry in such turmoil? We have seen some alarming remarks about trustees and, quite frankly, by people within government and the industry who have demonstrated their own alarming lack of knowledge and understanding of this essential stewardship role.

What trustees need - and pension funds in general for that matter - is a regulatory and operating climate that is sensibly attuned to their needs and not an endless shopping list of ever increasing demands driven by fears that they are always about to do something wrong. That’s not the way to foster a thriving trustee culture, motivated by the commitment to achieve and maintain a sustainable and workable custodianship of our pension schemes.
Instead of piling on the regulatory agony year by year on those employers and trustees ‘rash’ enough to provide, govern and supervise occupational schemes, the move needs to be in the other direction – to make it simpler and thus more appealing.
Following the publication of the original Bill in February last year, I have consulted widely on an informal basis with hundreds of lay trustees. As well as scheme specific issues that continually require the attention of trustees, the issues that appear time and time again include:
q Does everyone really understand the relevance of trusteeship?
q Do those responsible for developing so-called initiatives really understand the practical role of lay trustees?
q Is the range of support currently available, or to be available, to trustees really appropriate?
q Is trustee education and training at the right level and delivering?
q Does the new Pensions Act provide a workable and sustainable system of knowledge and understanding in 21st century trusteeship?
q How can lay trustees influence the overall proceedings and provide the necessary input into the requirements for 2005 and beyond?
These concerns can be turned into practical steps forward. For example:
q I recommend that any training provider, whether corporate or individual, who provides training to meet the published statutory and regulatory standards, should be required to be registered with the regulator, such registration being subject to an appropriate annual fee. As a minimum, evidence should be provided that the trainer’s syllabus meets the statutory criteria.
q I recommend that the Code of Practice for Pension Scheme Trustees (published by lay trustees themselves, with some professional assistance in 2002) be used to address the trustee’s job “in the round” and used as the basic trustee job description. Greater recognition of the trustee code of practice and its simpler, yet effective, approach to trustee governance, will give the green light to a more structured and user-friendly approach to good governance and, therefore, good trusteeship generally.
I recommend that independent (professional) trustees should be subject to some form of regulation or registration. After all, actuaries, auditors, investment managers, lawyers etc are regulated professions. Professional trustees should be registered, for a fee, and their scale of fees approved, by the new regulator. As with training providers, a move of this nature would give greater confidence to the users of these services.
I recommend a streamlined review of today’s lay trusteeship requirements, but not undertaken by sections of the industry, but on an independent basis, with one or a small number of people appointed to consider evidence from trustees, employers, government, regulator and the industry. Who should make this appointment? Having regard to vested interest groups in the industry, perhaps this appointment should be made by the Pensions minister, with a remit to report back on a speedy basis.
For the future, I recommend a Standing Committee on Lay Trusteeship to be accepted and recognised as a forum to identify and discuss issues particularly relevant to trustees and the implementation of their role and responsibilities. The question then arises how, and by whom, should such a body be established? It will need to draw on specialist knowledge, but should be constituted in such a manner that lay trustees are the constituency that is principally represented. It should adopt an independently minded approach and not be seen as a vehicle promoting sales pitches or products. This is a practical no nonsense way in which lay trustees can be admitted to the “inner circle”.

Trustees are “real people” - not the text book variety - who know that they are regarded as trusted people and are expected to carry out their responsibilities in a fair and impartial way. In a world where pensions, and trustees themselves, are in the public eye, it would be appropriate also to demonstrate this in a further way. I recommend that a “trustee ambassador or ambassadors” – a person or people who can identify with, and demonstrate, the principles of lay trusteeship, be appointed to “fly the flag” for trustees and in so doing to assist employers and pension schemes - particularly the smaller and medium-sized ones - in understanding and acknowledging that the system - with clarification and simplification - does and can work. Perhaps this is a matter that the Pensions Minister may wish to consider.
The government previously established the Employer Task Force on Pensions. One of its remits is to develop and promote the employer’s role in pension provision. The trustee’s role - which embraces both employer and employee involvement - needs developing, and if we are to believe the positive messages from government it also needs promoting. I would, therefore, modify how my last three recommendations - a trustee review, a standing committee and a trustee ambassador - might be developed. In order to progress these issues, I recommend there should be a Trustee Task Force that, in reality, can consolidate the first two points. Properly and sensibly constituted, this task force can also be an ‘ambassador’ in developing and promoting lay trusteeship. If matters moved in this direction, I would strongly recommend that a Trustee Task Force be established by government. It would certainly seem to be in tune with the Secretary of State’s declared aims and objectives.
On the same day that the Bill received Royal Assent, the Pensions Minister announced that the government wanted to strengthen and support the trustee system, promote the role and effectiveness of trustees and establish an important channel of communication to government on trustee issues. He has suggested a Trustees Forum and is currently seeking views.
Ways have to be found to create a more level playing field between the vast majority of the trustee community and the pensions industry, pensions regulator and government. Trustees have responsibilities and an important role to play. But let’s be honest. Professional consultants do not have a monopoly on good ideas. Trustees do not have a monopoly on good ideas. But trustees do have a contribution to make. In truth, working together will produce a greater monopoly of better ideas.

Brian Holden MBE chairman, trm advisory service, Trustee Risk Management Ltd;
and chairman, trustee Code of Practice Group

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