UK - The Pensions Regulator (TPR) has issued a consultation on trustee guidance over possible conflicts of interest, which it expects to trigger a "marked improvement" in conflict governance.
TPR said the draft guidance aims to help trustees "assess the adequacy of governance arrangements" put in place to manage conflicts which could arise when a "personal interest or duty to another party conflicts with their fiduciary duty to the scheme".
However, the guidance refers specifically to potential conflicts experienced by trustees who also hold a senior position within the sponsoring employer, as TPR believed "such emphasis is appropriate given the scope for conflicts".
The consultation outlines five "high level principles" for trustees to help identify and manage areas of conflict:
The consultation forms part of TPR's response to its thematic review of scheme governance, which identified conflicts of interest as a "priority area", but because conflicts of interest can "introduce a number of complexities for a trustee board" TPR considered it "appropriate to provide further guidance".
This follows recent findings from TPR's 2006 and 2007 annual surveys which showed while many trustee boards have "robust arrangements in place" few schemes have established a formal policy.
As a result, TPR warned following the new guidance it expects to see a "marked improvement" in the governance of conflicts, as it is concerned "some trustee boards may not be identifying conflicts".
TPR pointed out it expects conflicts to be resolved amicably between employers, trustees and their advisers, although it confirmed it will take action if an actual or potential conflict "presents a significant risk to members' benefits", a power which has already been demonstrated in the Telent pension buy-out case. (See earlier IPE story: UK regulator appoints trustees to Telent scheme)
Tony Hobman, chief executive of TPR, said: "Robust processes to identify, monitor and manage conflicts are integral to a well-governed scheme. Effective governance of conflict of interest by trustees is critical to helping us achieve our objectives of protecting members' benefits and promoting good scheme administration."
"Trustees should regularly assess policies and procedures they have in place to make sure they are well prepared to identify and handle conflicts as they arise," he added.
However, David Everett, head of pensions research at actuarial consultants Lane Clark and Peacock (LCP), claimed for larger schemes the guidance will not "move understanding much further on".
He said it is clear trustees are expected to "do better" on this issue, but argued the standing of the document is unclear as it is not a code of practice, but "appears to be more than just a helpful treatise on issues trustees can face".
"It appears that there will be - literally, as the guidance includes 18 boxes to tick in its margins - a box-ticking exercise for trustees to undertake. And that is the problem. Trustees could find that they are engaged in another compliance headache that might divert them from focussing on their core responsibilities," warned Everett.
Consultation on the draft guidance will close on May 30 2008.
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