The Pensions Regulator (TPR) has issued its response to its 2019 consultation on the future of pension scheme trusteeship and governance.
The consultation sought views in three areas: trustee knowledge and understanding (TKU) together with skills and ongoing learning and development; scheme governance structures for effective decision-making; and driving DC scheme consolidation (with a focus on schemes with benefit guarantees).
TPR's response is relevant to the trustees of all types of pension scheme: defined contribution (DC), defined benefit (DB), private and public sector. The important points to note are:
TKU, skills and ongoing learning and development
- TPR is consolidating all 15 of its Codes of Practice into a single web-based code and expects to launch a consultation on the new code during the first half of 2020.
- The regulator will then review and update the Code content relating to TKU and consult on the updated content in the early part of 2021. It will also review the TKU scoping guidance (which broadly sets out what trustees need to know and understand) and related webpages, and will look to differentiate by "trustee role-type" (for example, lay trustee, professional trustee and chair of trustee) and type of scheme.
- After trustees have had a reasonable amount of time to review their compliance with the new guidance, TPR will run a "regulatory initiative" on TKU. It will contact a large number of schemes about TKU and engage with any which cannot demonstrate compliance.
- As part of its review of the Code and related content, the regulator will set out "a range of acceptable methods for demonstrating TKU" compliance. TPR does not intend to introduce mandatory qualifications. However, it will consider setting indicative minimum continuing professional development requirements, perhaps 15 hours a year for lay trustees and the current industry standard of 25 hours for a professional trustee. For professional trustees, it says that "industry accreditation is likely to be another route for demonstrating how they have acquired TKU for their role".
- During 2020-2021, TPR will review and update its Trustee toolkit. The regulator recognised that it still needs to provide "free-to-use learning" for trustees. As part of its review, TPR will "seek opportunities to collaborate with industry to fill in subject-specific gaps and promote good quality learning content".
- In response to concern from some lay trustees that they are not allowed enough paid time to carry out their trustee role and undertake learning, TPR will start a campaign this year to remind employers of their duty to provide employees who are trustees with paid time off for both of these purposes. The campaign will also "address other issues where employers can have a positive impact on the performance of the pension scheme, e.g. trustee recruitment".
Scheme governance structures for effective decision-making
- For the time being, TPR is not going to "pursue the introduction of a requirement for schemes to report on the steps they are taking to increase diversity on their boards". Instead, it is going to begin by establishing an industry working group to help pension schemes improve the diversity of trustee boards. TPR will be the first chair of the group which will prepare, amongst other things, "good and best practice guidance on board composition and how boards can make the most of the pool of potential trustees they have available to them" and "practical tools and case studies to promote the recruitment of diverse trustees".
- Similarly, TPR is not going to pursue the introduction of a requirement for every scheme to have an accredited professional trustee on its trustee board. However, it will keep the need for this under review. It will also follow the impact on professional trustees of the new industry standards and accreditation process.
- There will also be no immediate change in the area of sole trusteeship. However, TPR is going to commission research into the "scale and reach" of sole trusteeship and "continue to keenly scrutinise schemes that use a sole trustee", and will consider changing its regulatory approach if it finds evidence of "fundamental problems that need to be addressed". The regulator is also going to support the development of an industry code for sole trusteeship.
Driving DC scheme consolidation
- The Department for Work and Pensions (DWP) has consulted on proposals which include requiring smaller DC schemes to make a statement every three years on whether members' interests would be better served if the scheme was consolidated into a larger DC scheme. Because guarantees – for example, guaranteed annuity or growth rates – can be a barrier to consolidation TPR in its 2019 consultation asked for views on potential ways forward.
- The regulator confirms that it not does not intend to take a "blanket approach" to consolidation and will not press trustees to consider consolidation where a scheme is "well-run and can demonstrate it is offering value for members".
- TPR is not going to issue guidance on winding up DC schemes with guarantees in the immediate future because the DWP is working on a set of regulations and statutory guidance to accompany its response to its own consultation. This guidance will help trustees to decide whether their scheme is offering value for members or whether they should consider consolidation and address the questions of guarantees.
- TPR is also working with the Financial Conduct Authority to help independent governance committees and DC scheme trustees carry out value for members' assessments. It expects to publish the outcome of this work by the end of the current financial year (31 March 2020).
Osborne Clarke comment
The consultation response confirms that TPR has decided against some of the more eye-catching suggestions in its consultation paper, for example requiring all pension schemes to appoint a professional trustee or introducing mandatory qualifications for trustees.
However, it also confirms that trustees can expect to see a number of important changes in the areas of TKU, diversity and (for smaller DC schemes) consolidation, in next couple of years.
Trustees should continue to follow developments.