Gail Moss outlines how pension funds can develop training schemes to enable trustees carry out their duties competently
Pension scheme trustees are required by law to perform an increasingly onerous range of duties. Good governance is now the order of the day, and the monitoring and challenging of advisers is of paramount importance.
For trustees, this means that familiarity with their own pension scheme, and their role as trustees, is a must.
Yet some trustees may not have a pensions background, while others, such as member-nominated trustees, might have scant financial experience. Even those trustees with experience of pensions may know little about the specifics of the scheme whose interests they have been appointed to protect. And all trustees need to keep abreast of changes in regulation.
Some kind of formal training is therefore necessary to help trustees carry out their duties and, as far as possible, avoid costly mistakes.
Types of training courses
Most pension schemes will be too small to arrange their own training courses. But even the larger ones might be better off getting in external trainers who can provide a wider perspective than someone who is only familiar with the workings of the particular scheme in question.
Some national pensions regulators - for instance, those in the UK and Ireland, provide online training courses for trustees to complete in their own time.
Both the regulators, and professional groups such as national pension fund associations, may also provide their own on-site courses.
But while online tools and generic courses are useful basic learning aids, they should still be complemented by courses tailored to individual schemes, preferably in a face-to-face environment where trustees can ask questions and get answers they understand.
These are more likely to be run by scheme advisers, stand-alone training companies and product providers. If scheme advisers do not themselves run courses, they are a good source of recommendations about where to go for training.
Lists of training providers may also be obtained from regulators, professional organisations, such as the Pensions Management Institute (for the UK), and from the trade press.
Trustees are busy people, often with day jobs. So it is not always practical for them to study for long periods of time, although they might, by law, be entitled to time off work for training.
Learning should consist of manageable segments, built up gradually over a period of time, in whatever format is appropriate. However, even if trustees start with an online course, as they acquire knowledge they are going to need training which is more tailored to their own scheme.
Often, training sessions can be included at the end of a trustee meeting; this is especially useful for more advanced training with an established board that works well together. An alternative is to arrange training ‘away-days’, to help the board to gel as a team.
Training courses should be seen as a form of continuing professional education, especially since trustees need to be updated on evolving legislation and practice. As part of this process, trustees should also include reading professional news and magazines, and attending seminars and conferences.
Content and format
The over-arching goal of training is to teach trustees what their duties and objectives are.
“Face-to-face sessions enable trainers to find out how much people know already,” says Frances Corbett, educational development manager at the UK National Association of Pension Funds (NAPF). “That, in turn, enables them to adapt the content to make them more efficient.”
Within a training session, information is best conveyed in bite-sized chunks, says Corbett.
“One educational theory says that in a lecture of 90 minutes, people concentrate for 10 minutes and come out with just two minutes’ worth of information,” she says. “So ideas could be conveyed in 20-minute chunks, for instance, followed by a short break to allow trustees to review what they’ve learned.”
Another way of increasing understanding is to include several case studies, with trustees working in small groups. This helps break up the day, allows for interaction and conversation, and gets people thinking.
Corbett considers that 10.00 to 16.00 is the maximum period of time for training sessions to be useful - any more, and participants become saturated.
It is also important to give participants hard copies of the course material to take away, for reference once each session is over.
Governance and decision-making
One of the most important tasks of trustees is to check the work carried out by outside providers. As with other areas, the key is that trustees must operate within their powers as defined by the trust deed and scheme rules. The arrangements with each separate provider should also be in line with the relevant scheme document - for instance, instructions to the actuary must be in accordance with the statement of funding principles. It is up to trustees to make sure providers are complying with what they have been asked to do, and giving full value.
The emphasis here should be on process, rather than information. “It is not just about having the knowledge, it’s applying the knowledge to your day-to-day trusteeship that’s important,” says Corbett.
One area that can appear complex is investment management, but it is no different from other aspects of trusteeship.
Trustees need to comply with the statement of investment principles, but how much they need to know about investing depends on the scheme itself and what investments it holds, because some are more complicated than others.
Trustees should be clear that they understand the scheme’s investment strategy and the general nature of the assets it holds. The important thing is to make sure they are comfortable with the information they have been given by their investment advisers, rather than understanding every little detail themselves.
So the training should give them the tools to ask advisers to explain, say, how certain investments work, and to challenge them until they get a response that they understand.
Subjects covered should include asset classes, the portfolio construction process, how charging structures work, and understanding the reports produced by investment managers.
Questions to ask the trainers
As with service providers, trustees need to be able to check that they understand what they have learned, or been told, during training. So it is important for trustees to question or seek clarification on anything they are not sure about.
But training courses are not just for providing access to generic advice - they can also be a useful source of help for specific problems relating to the trustee’s own scheme. Participants should therefore take the opportunity to pick the brains of trainers and other trustees - especially from other schemes, if they are on the same course - by asking for practical advice.
Common pitfalls during training
• Using experts as trainers: They may know their area comprehensively, but not be good at putting it across. Someone with less knowledge but the ability to convey it better might be more effective.
• The over-use of PowerPoint: “There shouldn’t be a contest for the biggest number of slides which can be fitted into a presentation,” says Corbett. “The problem with only using PowerPoint slides is that it doesn’t allow the trainer to find out how much participants know already. Trainers should also aim to find out where the gaps in knowledge are, using question-and-answer techniques, and limit the use of PowerPoint as a tool to illustrate answers.”
Spoon-feeding participants: Rather than reciting information to participants, trainers should give trustees the tools to work things out themselves during the training, which helps understanding and remembering. This also allows the trainer to identify what has been picked up incorrectly, or not picked up at all.
There are also pitfalls which trustees themselves can fall into:
• A mechanical attitude: Some trustees may engage in training just because they need to get it out of the way. But this attitude will not foster a productive acquisition of knowledge and understanding, says Jerry Moriarty, director of policy, Irish Association of Pension Funds.
“Trainers should ensure that people learn from the courses, rather than just tick the box,” he says. “They must be made aware that it’s a huge responsibility, not a one-day thing. For instance, they should not only learn about case law decisions, but also the process gone through to make those decisions.”
• Complacency: “Sometimes people do a day course, then think they have nothing left to learn,” says Moriarty. “But training needs are ongoing, as legislation and practice is changing all the time.”
How effective is the training?
An immediate indication of how effective the training has been can be obtained from feedback questionnaires completed by participants. Alternatively, participants can be encouraged to summarise or write down what they have learned, to show that they understand it.
At a later stage, the chair of trustees could write a brief report on how effective the course has been on individual trustees’ performance; this could be extended to a 360º review (where the review is carried out both by the individual and his colleagues).
An alternative is for participants to be interviewed on a one-to-one basis, or even to take an exam. A formal exam might be a step too far, especially since trustees are not doing the job to earn money. But there might be other tests of competence which can be carried out - for instance, in the UK they could sit for the Pensions Management Institute Award in pensions and trusteeship, which uses multiple-choice questions to establish knowledge and understanding.