Trusteeship and accreditation: where are we now?

• United Kingdom

• Pensions

26-02-2020

This speedbrief outlines the current state of play on some important issues relating to trusteeship, following on from the Pensions Regulator’s Future of trusteeship and governance consultation response this month and recent industry updates on professional trustee accreditation.

Trustee board composition

Will every scheme need to appoint an accredited professional trustee?

No, not for now. The Regulator considers that it would not be feasible, particularly given current market capacity, to require that a professional trustee sits on every trustee board. The majority of consultation responses were also unsupportive of the proposal.

However, the Regulator may revisit this in future if the consistency in quality of scheme governance does not improve.

Will trustee boards need to meet diversity criteria or report on diversity?

No, not for the time being. The consultation responses on this question were fairly evenly split between those for and against. The Regulator does not currently intend to change the law on trustee recruitment or ask schemes to report on how they are increasing diversity on boards. However, it does plan to keep an eye on this area and may reconsider the idea if “evidence suggests a firmer approach needs to be taken in future”.

The Regulator will be launching an industry group to discuss trustee diversity, including what is meant by diversity in this context and best practice guidance on how boards can make the most of the pool of potential trustees available.

In relation to member-nominated trustees (MNTs), the Regulator mentions that it believes a selection process (rather than election) could help to improve diversity and skills, though it recognises that schemes might choose an election process where knowledge and skills gaps are not an issue.

Will sole trusteeship be restricted or more heavily regulated?

Not for now. However, the Regulator continues to have some concerns about aspects of sole trusteeship. By sole trusteeship, it means an individual or professional trustee company being appointed to replace a more “traditional” trustee board.

Many of the consultation responses took the view that it is not necessarily the model of sole trusteeship that is the problem but the quality of the operator. The Regulator plans to “keenly scrutinise” schemes that use sole trustees and will commission research to give it a better understanding of the landscape. So, we can expect to hear more on this topic in due course.

Trustee knowledge and understanding (TKU)

Will the bar be raised on TKU generally?

Probably, but not quite yet. The Regulator’s TKU Code of Practice was published in 2005 and last updated over a decade ago. Much has changed since then, so the Regulator has understandably decided to review and update its TKU Code of Practice and related materials. It plans to simplify how it presents TKU expectations, differentiating them by trustee role type (lay trustee, chair, professional trustee) and type of scheme (DB, DC and public service).

This should lead to more clarity in terms of the Regulator’s TKU expectations and how these can be met. There is also likely to be an increased emphasis on the higher standards already expected of professional trustees and trustee board chairs.

The Regulator plans to consult on the new TKU content during early 2021. Once the content is finalised and trustees have had some time to adjust, the Regulator will launch a “regulatory initiative” on TKU. This will involve contacting large number of schemes and engaging with those who have not assessed and adequately addressed TKU needs.

Will trustees need a qualification?

The law will not be changed to make a trustee qualification mandatory. Instead, the Regulator will “look to articulate a range of acceptable methods for demonstrating TKU” when it reviews its TKU content. Acceptable methods are likely to include the Regulator’s trustee toolkit, other industry-based training and work experience.

For professional trustees, the Regulator says “industry accreditation is likely to be another route for demonstrating how they have acquired TKU for their role”. Allowing for a range of different TKU options should, according to the Regulator, reduce barriers for participating in trusteeship and support board diversity. The Regulator has however said, as part of its professional pension trustee standards initiative, that it will expect professional trustees to gain accreditation in line with the standards set out by the Professional Trustee Standards Working Group (PTSWG). So, most professional trustees are likely to seek to become accredited, which includes gaining qualifications (accreditation is discussed further below).

Will trustees need to meet an annual ongoing learning requirement?

The Regulator will not seek to change the law to set formal requirements around ongoing learning or continuing professional development (CPD), as it is commonly known. Instead it will “explore whether to set expectations”. This will include looking at setting indicative CPD hours requirements and types of activities that will count towards learning. It says (quite pointedly) that it considers that 15 hours would be reasonable for lay trustees whereas professional trustees will be expected to follow the industry-based standard, currently 25 hours a year. This is not the final word on the matter but it certainly gives a strong steer as to the Regulator’s thinking.

The Regulator will look more closely at CPD as part of the TKU content review, which is due to begin in early 2021.

What about time off to learn and carry out the trustee role?

Some lay trustees (mainly of smaller schemes) have told the Regulator they are not given sufficient paid time off to gain TKU and perform the trustee role. Others have noted a lack of financial resources for paid training. The Regulator plans to run a targeted campaign to remind employers about their duties under the Employment Rights Act 1996 to give employees paid time off where they are a trustee of the employer’s occupational scheme.

What is happening with the trustee toolkit?

The Regulator has gathered that there is a “strong attachment” to its trustee toolkit but notes feedback that the format is sometimes difficult to navigate. It plans to review the toolkit during 2020-21 to see where it can make improvements, possibly using industry collaboration to fill subject-specific gaps.

What about the Regulator’s “single code”?

The Regulator plans to consolidate its 15 Codes of Practice into a new single web-based code, which will also include new topic areas such as environmental, social and governance issues and climate change. This is due to be consulted on during the first half of 2020. Note that the TKU Code of Practice will be subsumed into the single code but the update of TKU content will only begin after the single code has been finalised, most likely in early 2021.

The homepage of the Regulator’s website currently includes a questionnaire asking for views on how the single code content should be organised. Given the importance of this content to trustees, we would encourage you to complete the short questionnaire (it should only take a couple of minutes).

Professional trustee accreditation: what’s going on?

In an unexpected development this month, the Pensions Management Institute (PMI) and the Association of Professional Pension Trustees (APPT) announced separate accreditation programmes for professional trustees – it was previously understood that they would be working together on a single programme. Click to see the PMI’s announcement and the APPT launch referenced in a press report.

The PMI’s programme was scheduled to open for registrations from 24 February 2020 and the APPT’s is due to launch in April 2020. Both programmes will follow the PTSWG standards and both appear (based on quotes from David Fairs in their launch announcements) to have been welcomed by the Regulator.

It now seems that professional trustees will have two different accreditation routes to choose from. Once full details are available for both options, they will be better able to make an informed choice.

Some suggested action points for trustees

• If you are interested in joining the Regulator’s trustee diversity group, email futureoftrusteeship@tpr.gov.uk by 29 February 2020.
• If your scheme currently uses an MNT election process, think about switching to a selection process going forward. This is not mandatory but the Regulator thinks it could help to improve diversity and skills.
• Identify gaps in TKU and aim to fill them. Consider building regular training sessions into your trustee meeting agendas and seeking targeted training from your advisers before you embark on a new project.
• The Regulator has already suggested that a reasonable minimum level of annual CPD is 15 hours for lay trustees and 25 hours for professionals. Start building up (and documenting) your CPD hours if you are not there yet.
• Professional trustees should watch out for further details of the PMI and APPT accreditation programmes, and consider which route to take.
• Express your views on the Regulator’s proposed single code structure via its questionnaire.
• Schemes with sole trustees should prepare for increased scrutiny from the Regulator. Make sure regulatory and governance structures are in order and well documented.
• Watch out for (and consider responding to) the single code consultation, due during the first half of this year, and the TKU consultation, due in early 2021.