In 2016 the Pensions Regulator (tPR) published its’ discussion paper on 21^st Century Trusteeship and after feedback introduced a campaign to raise the standards in the following areas:

1.     Governance, roles and strategy

2.     Training, skills and advisers

3.     Risk and conflicts of interest

4.     Meetings

5.     Value for members

Whilst these are important for ensuring efficient governance of pension schemes, the foundation of good governance arguably lies within the skills and knowledge that trustee boards possess, the quality and experience of their advisers, and the composition. The Pensions and Lifetime Savings Association (PLSA) discussion paper titled ‘Good governance – how to get there’ supports this, stating that ‘skilled trustee boards, with a rounded set of collective knowledge and experience and the cognitive diversity that this brings are the foundation of good governance.’

TPR has stressed the importance of trustees possessing the necessary skills, knowledge and experience to run their scheme. I would add that a board of trustees with complementary skills is also important to facilitate quality discussion and decision-making.

Whilst trustee candidates are screened to ensure they possess these qualities on joining boards, it’s essential that trustees maintain the level of necessary skills and knowledge through regular assessment and training. To support this tPR created a skills matrix and board evaluation tool to help trustee boards to evaluate their skills and identify gaps to be addressed.  But how well was this used? On 10 February the announcement that tPR plans to contact pension schemes to test levels of trustee knowledge and understanding and consider “appropriate action” where these skills fall below expectations suggest this was not as well used as it should have been.

Advisers and service providers play a pivotal role in how trustee boards run a scheme. Trustees need to appoint the right people to undertake the role in question, and then continually monitor their performance and any advice provided. According to PLSA’s discussion paper titled ‘Good governance – how to get there’, an astonishing 24% of scheme trustees surveyed said they ‘never’ disagreed with external advisers and a further 58% said they rarely do so. This suggests that many trustees lack the expertise to understand and critique the advice they receive or are not confident enough to challenge their assumptions. Trustees have a fundamental responsibility to challenge advice provided and regularly review this against documented service standard or objectives. It’s not a “nice to have”, but essential.

A trustee board composed of individuals with an array of skills is key to ensuring effective decision-making. Many trustee boards are made up of individuals with a background in the finance industry, but the role of a trustee involves more than just ‘number crunching’. Soft skills such as debating, challenging and negotiating also form an important part of the role of a trustee. A diverse trustee board made up of individuals with complementary skills should help to improve scheme governance.

Alongside this, it’s very clear that trustee boards do not fully represent their membership. In 2017 the PLSA carried out research which highlighted that 83% of trustee boards are men and only 3% of trustees are under the age of 40. A diverse trustee board which is more representative of its membership will provide trustees with more insight into the issues their members face, allowing them to respond to the needs of all their members. 

Making changes to the composition of a trustee board is not solely the responsibilities of the trustees and appointments are often influenced by the employer. However, the trustee board should make the employer aware of their requirements and ensure that prospective candidates are honest, competent, financially sound and act with integrity. Having undertaken many member-nominated trustee exercises and witnessed the limited responses received from members, is it time the industry thought outside of the box for new ways of encouraging members to consider becoming a trustee? For example, arranging workshops to allow potential candidates to meet trustees who already undertake the role.

TPR’s requirement for newly appointed trustees to complete the Trustee Toolkit within six months of their appointment can seem daunting and may act as a deterrent for new trustees. However, the opportunity to become a trustee is a rewarding experience that can help others and make a difference. And as an industry we need to be encourage more individuals to take up this opportunity.

Phil Farrell, Partner from Quantum Advisory