How professional is your professional trustee?

Estimated reading time: 5 minutes

We are now all familiar with the ‘21st Century Trusteeship’ education campaign The Pensions Regulator (the Regulator) initiated after its research of 2016, which uncovered that many schemes were not being run to the expected standards. Phase II of this programme will focus on the makeup of trustee boards, competency standards and accreditation for professional trustees. The Regulator published an industry consultation on the future of trusteeship and governance on 2 July 2019. One of the questions asked is whether an accredited professional trustee should be required to sit on every board.

What is a professional pension scheme trustee?

In 2017 the Regulator defined what a professional trustee is:

" We consider a professional pension scheme trustee to include any person, whether or not incorporated, who acts as a trustee of the scheme in the course of the business of being a trustee."

Points to note:

  • Whether you are paid to be a trustee is still a factor in deciding if you are a professional trustee, but not the main one. Many schemes now pay their member nominated trustees when they no longer work for the business and they would not be considered professionals in most circumstances.
  • If the Regulator considers a trustee to be a professional in relation to one scheme, it will view them as a professional in relation to all schemes where they are a trustee.
  • The Regulator does expect trustee boards to review the value that their paid trustees bring to the scheme, irrespective of their professional status or whether they are company or member nominated trustees.

Full details of the Regulator’s definition can be found here.

Many schemes have a professional trustee involved either as Chair, an ordinary member of the board, or as Chair of a specialist sub-committee. A good independent professional trustee can help get the best out of adviser teams. They can draw on first-hand experience of the latest regulations and guidance and provide insight into industry best practice in similar scenarios.

What standards must a professional trustee meet?

The Professional Trustee Standards Working Group (PTSWG) was established in 2017 by professional trustee bodies across the industry to establish a set of requirements. These standards were published in March 2019 with additional standards for professionals acting as Chair or sole trustee.

An accreditation system will be run by the Pensions Management Institute (PMI). To be accepted, applicants will be required to:

  • comply with a ‘fit and proper’ requirement modelled closely on that required for trustees of master trusts
  • provide references from two reputable figures within the industry, such as a pensions lawyer or a scheme actuary
  • have successfully completed the latest Trustee Toolkit
  • have passed the PMI Award in Pension Trusteeship
  • complete a soft skills test designed to assess the ‘other professional trustee skills and behaviours’ associated with professional trusteeship.

Whilst there is no mandatory requirement to hold the accreditation, a recent Professional Pensions poll indicated that four out of five trustees would expect their professional trustee to be accredited. The expectation is that the uptake will be high, driven by market demand.

What are the regulations for sole trustees?

The increase in number and size of pension schemes where sole trustees are appointed is attracting attention from the Regulator. There is some difficulty in getting the benefits of diversity and challenge with a sole trustee. Those operating under professional trustee firms are putting in place processes to counter these risks, for example alternates and peer review of material decisions. Some also have a policy of encouraging rotation of appointments.

The Regulator will be looking more closely at cases where there is a sole trustee, particularly if it has questions about valuations submitted. The consultation contains a number of questions about sole trustees to both seek opinions and gather evidence in advance of making proposals in the future.

Questions include whether the governance standards for sole trustees should be strengthened, perhaps by requiring a minimum of two trustees to make decisions. The Regulator also asks whether respondents have any real examples of employers appointing a sole trustee in order to negotiate an employer-friendly funding agreement. Professional trustees who are not part of a trustee firm are described as sole traders. The new professional trustee standards prohibit sole traders from becoming sole trustees.

What is the future for professional trustee appointments?

The onus is on the professional pension trustee to demonstrate the standards and gain accreditation, but it’s not a legal requirement for them or those appointing them. Of course, if you are appointing a professional you do need to understand whether that appointee will be a professional in the Regulator’s eyes. Trustees will be expected to undertake due diligence on their professional counterparts (or impress on the sponsoring employer the need to do the same). Following up on references is essential.

The Regulator believes that “the vast majority of pension schemes would benefit from appointing an accredited professional trustee to their pension board” and is “hopeful that, in time, the accreditation route for professional trustees becomes the norm across the industry”. It encourages professional trustees to gain accreditation to show that they meet the standards. The Regulator also notes that there are simply not enough professional trustees available to require one to sit on every board at the moment. The numbers of schemes are expected to decrease in the future, which may make this more feasible.

It seems likely that many trustees who want to demonstrate good governance and risk management will want to appoint a professional who has the recognised accreditation, ensuring the accreditation is retained for the duration of the appointment. Some will argue this is box-ticking, but, with no other measure to use, it would seem difficult for trustees and employers to ignore it. Possibly another line in the risk register?

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