The Professionals - What does a professional trustee look like?

When people ask how to improve the UK occupational pensions system, I think of an old Irish farmer. When asked for directions, he said he wouldn’t start from here.

The trust model for UK occupational pensions has been based on the idea of well-meaning amateurs. These individuals work in good faith for the benefit of the beneficiaries. In hindsight it is perhaps not the best fit but it is where we are.

The level of complexity, breadth of regulation and potential impact of pensions schemes on the survival of their sponsors has escalated exponentially in recent years.  The governance and knowledge and understanding requirements are ever increasing the demands on trustees and leading to growth in the number of paid trustees.

The added demands on the time of trustees has led to an increase in the number of lay trustees (especially chairs) being remunerated. Many pension schemes have different areas of expertise. 

Because of this, some boards choose trustees with specific skills. These skills can include legal, accounting, or investment knowledge. Remunerating a lay trustee does not make them a professional and being a trustee with an expertise in one are of a pension scheme does not make you a pensions expert.

Last year, the Pensions Regulator proposed a definition for professional trusteeship. This definition relies on two factors.

1. Did the person get paid beyond expenses or receive an honorarium for being a trustee?
2. Were they an expert in trustee matters?

Was this the right starting point?  Apparently not entirely. In the new Professional Trustee Description Policy that has just been issued, the Pensions Regulator has stated that it would not normally class remunerated trustees as a Professional Pension Scheme Trustee where they are a member of the scheme (or a related scheme); or employed within the same group as a participating employer or; do not act, or offer to act, as trustee to any unrelated schemes. In our view this move is understandable, appropriate and necessary.

A Professional Pensions Trustee does not need to be an expert in one area. However, they should know a lot about running a pension scheme. That distinction is key and the Regulator has got it spot on.  The missing piece of the jigsaw is what does “having expertise in trustee matters generally” look like?

It is now over to the profession to paint this picture, build a code around it and regulate who can propose themselves as a Professional Pensions Trustee.   The Regulator has taken an important step in the right direction, it is time for the profession to come of age.

Above all else, having a Professional Pensions Trustee on your board or as a sole trustee should improve the governance of your scheme.  It should reduce the risk of their being a breach of law and the need for the Regulator to impose a fine.  Therefore, should that need arise it is only natural that the Professional Pensions Trustee is held to a higher standard and that any fine imposed on them is greater – how much greater is not straight forward and, amongst other criteria, should take into account the nature of the breach and ability of the trustee to pay.

Sometimes breaches are beyond the control of the Trustee(s). For example, this can happen when Employers are slow to discuss funding.

However, when a breach is unavoidable, a Professional Pensions Trustee should have strong plans to reduce the impact. They should also have spoken with the Regulator. This helps manage both the chance and size of any fine.

The change in definition will need to be kept firmly in mind when it comes to your Scheme Return as Professional Pension Trustees will need to be identified in it.

Professional Trustees should be good for scheme governance to an extent that far outweighs the risk of higher fines.  It is essential for employers, co-trustees and members alike that professionalism for the 21st Century Trustee is well defined and understood. This new definition is a good starting place.